Meryl Witmer Talks Top Picks At Barron’s Roundtable

Meryl Witmer talks to Barron’s about her favorite stock picks – see the text from Barron’s

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MERYL WITMER
Barron’s: How does the market look to you, Meryl?

Witmer: It seems fairly valued. We can’t find many situations that are interesting from a value perspective. We recently added to our position in Spectrum Brands Holdings [SPB]. The company announced the acquisition of Armored Auto Group in April. The deal will be nicely additive to Spectrum’s after-tax free cash flow, and augment the company’s growth prospects. We continue to be impressed by Spectrum’s management team, led by Chairman David Maura. Tellingly, he recently purchased shares at $96.05 a share. The stock is trading around $97. David has been a smart buyer in the past. He owns a lot of shares.

You last recommended Spectrum in the 2013 Roundtable. What has changed since then?

I recommended the stock after the company had purchased the Hardware & Home Improvement business from Stanley Black & Decker [SWK]. That was a great move, and it worked out well. Spectrum owns a variety of consumer brands, including Rayovac and Varta in batteries, Black & Decker appliances, Remington grooming products, George Foreman Cooking, and Juiceman. The company also sells pet supplies and insecticides.

Spectrum thinks it can grow Armored Auto’s brands -- Armor All, STP, and A/C Pro -- geographically, using the company’s worldwide distribution network. Management also plans to spend to develop new products.

How is Spectrum doing financially?

The company raised its estimate for 2015 after-tax free cash flow to $440 million from $400 million before the Armored Auto deal. That includes restructuring charges. We add back the restructuring charges and fully tax Spectrum’s earnings to get after-tax free cash flow of $7.75 a share pro forma, increasing to $9.35 in 2016. Our one-year price target is $120 a share, or 12.5 times fully taxed free cash flow, to which we add $4 a share of value from net operating loss carry-forwards [a tax benefit].

Spectrum probably deserves a higher multiple, given the quality of the business, free-cash generation, and management’s ability to allocate capital well.

At what multiple would it be fully valued?

If the stock were trading for 14 or 15 times free cash flow, it would be pretty fully valued, but I would probably still hold it. I’d be surprised if it isn’t $140 or $150 in a few years, assuming this management team is still in place.

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