Is Jargen Corp (JAH) a good stock to buy right now? The consumer goods sector is not a growth sector. Due to market saturation and ingrained consumer habits, consumer goods companies typically grow around GDP plus two or three percent due to stock buybacks. Analysts expect Procter & Gamble Co (NYSE:PG), for example, to grow earnings per share by around 6.68% annually over the next 5 years.
When it comes to growth, Jarden Corp (NYSE:JAH) is the exception to the rule. Jarden revenue is up over 20 fold since the beginning the century, with revenue increasing from $357 million in 2000 to $8.287 billion in 2014. Jarden’s stock is up over 50 fold, increasing from $1.05 a share in 2000 to over $55 a share in 2015. Jarden shares have also done well recently, with the stock up 46.6% in the last 12 months and up 17.48% year to date.
Jarden grows revenues faster than the sector through M&A. Jarden management acquires companies, finds synergies, creates value, and uses the unlocked free cash flow to fund larger acquisitions. Jarden management smartly finances the acquisitions with a mixture of cash on balance sheet, leverage, and common equity so that the company’s debt doesn’t become a problem. Through this loop, Jarden management has delivered outsize returns in the slow growth consumer goods sector.
Jarden Corp (NYSE:JAH) recently announced that it will acquire Waddington Group for $1.35 billion in a deal that will be immediately accretive to EPS, cash flow, and EBITDA margin. Waddington Group is a leading manufacturer and seller of premium disposable tableware. On a combined basis, management believes the deal will increase adjusted EPS by 5% by FY 2016 due to cross selling and elimination of overlapping positions. By financing the deal with a mixture of equity and debt, management expects Jarden’s bank leverage ratio to be 3 or under by year end.
The Waddington Group deal highlights Jarden’s platform value. Because of the Waddington acquisition, Jarden is on track to grow EPS by 10% a year while at the same time maintaining a decent debt/cash flow ratio. Given the many disparate companies in the consumer staples sector similar to Waddington, Jarden’s above-average EPS growth rate through M&A can continue for a long time.