While the broad market largely has treaded water, Jacuzzi
has rallied 120% to a high of 9.99, amid what Chairman and CEO 63-year-old David Clarke, calls "fabulous demand" for the company's products.
In the fiscal year ended last Sept. 30, Jacuzzi
earned $10.1 million, or 14 cents a share, from continued operations, on sales of $1.19 billion.In fiscal 2004 the company, based in West Palm Beach, Fla., expects to net 52 cents a share.Analysts are forecasting 71 cents in fiscal '05, and as much as a dollar in fiscal '06.
Based on its current share price, Jacuzzi
is selling for 50% of sales, 15 times this year's estimated earnings and 11 times next year's expected profits, a substantial discount to both the market and the company's anticipated growth rate.
Behind Wall Street's lofty profit forecasts are bubbling sales of Jacuzzi
and Sundance bath products, which rose 21%, to $444 million, in the six months ended March 31.The bath-products unit accounts for 70% of revenue; industrial plumbing products, manufactured under the Eljer and Zurn names, chip in 23%, and Rexair
, a direct marketer of vacuum-cleaning systems, contributes 9%.
According to the National Kitchen & Bath Association
, an industry trade group, 580,000 jetted whirlpool tubs were installed in remodeled homes in the U.S. in 2003, up from 280,000 in 2001.Though Jacuzzi's very name is synonymous with the category, the company believes it controls 24% of the domestic market, compared with 20% for American Standard and 14% for Kohler.Jacuzzi's
bath sales have been boosted in fiscal '04 by a new distribution agreement with Lowe's
(LOW), the world's No. 2 home-improvement retailer, which named the company its 2003 Supplier of the Year in Home Decor. Jacuzzi
will sell at least 45,000 of the company's bath products through September.
"We view our target price as conservative, given the significant earnings acceleration [Jacuzzi] should experience," he
To be sure, a sharp jump in interest rates could cool home sales and curb the availability of refinancing for remodeling jobs, which would hurt Jacuzzi
As for its performance in a weakening economy, Jacuzzi
already has proved its mettle. The Jacuzzi whirlpool bath was invented in 1968 by Roy Jacuzzi, now Jacuzzi Brands' nonexecutive chairman, whose forebears developed a hydrotherapy pump to treat a family member's arthritis.
Introduced at California's Orange County Fair, the brand grew up with a nation newly bent on health, fitness and recreation.Jacuzzi
later became part of Britain's Hanson (HAN), only to be disgorged in 1995 as part of U.S. Industries
, an industrial conglomerate.
But unloading Rexair
would deprive Jacuzzi
of a reliable cash cow. Jacuzzi
may consider strategic acquisitions.