Should you invest in Spectrum Brands as it sells hardware and home improvement unit?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Sep 8, 2021
  • Spectrum Brands’ shares on Wednesday spiked more than 18%.
  • The company announced it is selling its hardware and home improvement unit.
  • The stock still trades at an attractive P/E ratio of 21.83 ahead of this year’s EPS growth.

On Wednesday, Spectrum Brands Holdings Inc. (NYSE:SPB) shares soared more than 18% after announcing it is selling its hardware and home improvement business segment. The company is selling the unit to ASSA ABLOY for $4.3 billion in cash, which is equivalent to 14X the segment’s full-year 2021 adjusted EBITDA.

Spectrum Brands will use proceeds from the sale to service outstanding debt, with a portion of the balance reinvested in the business to boost organic growth. It will also use the funds to finance strategic acquisitions and return some to shareholders.

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In announcing the sale of the segment, Spectrum CEO David Maura said:

After the closing, we will become a more pure-play consumer staples company with higher growth rates and strong margins.

Should you bet on Spectrum Brands’ exciting growth?

Although Spectrum Brands shares spiked more than 18% on Wednesday, the stock still trades at a compelling trailing 12-month P/E ratio of 21.83, making the stock attractive to value investors. Moreover, analysts expect Spectrum Brands’ earnings per share to grow by a whopping 150% this year before rising at an average annual rate of about 18.2% over the next five years.

As a result, the stock now trades at an exciting forward P/E ratio of 14.67, making it an attractive option for growth investors. Moreover, Spectrum Brands plans to become a high-growth company following the sale of its hardware and home improvement segments, as it focuses on the consumer staples business.

Source – TradingView

Spectrum Brands has room left to run after the spike

Although Spectrum Brands shares spiked nearly 19% following Wednesday’s announcement, the stock price is now below its current 52-week high of about $97.82.

Moreover, the stock still trades at exciting valuation multiples and promises growth.

Therefore, although the SPB stock price skyrocketed to overbought conditions, it could maintain the upward movement until it retests the key resistance labels. As such, investors can target profits at about $97.92 or higher at $102.01. On the other hand, if the stock price pulls back, it could find support at $90.18 and $85.95.

Bottom line: it may not be too late to buy Spectrum Brands

In summary, Spectrum Brands shares spiked to overbought conditions of the 14-day RSI following its latest announcement. However, the stock seems to have room left for more upward movement ahead of its exciting EPS growth.

Therefore, investors could still net profits from the current bull run before the stock retest the current 12-month highs.

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