American Beauty: Under the Radar - TheStreet

American Beauty: Under the Radar

Alberto-Culver perennially mixes around its product lineup, all the while getting bigger and more profitable. Still, the company is going it alone.
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BOSTON (

TheStreet

) --

Alberto-Culver

(ACV) - Get Report

has carved a niche in the hair- and skin-care markets with formidable brands like TRESemme and St. Ives. The Melrose Park, Illinois-based company announced the purchase of

Simple Health & Beauty

, a privately owned U.K. skin-care company, on Tuesday. A day later, Alberto-Culver's stock hit a 52-week high. The deal, financed entirely with cash, is expected by analysts to improve Alberto-Culver's profit margins.

Alberto-Culver has been buying and selling businesses in the past few years. In 2006, it spun-off

Sally Beauty

and began focusing exclusively on consumer products. In July 2008, the company sold

Cederroth International

, a Stockholm-based subsidiary. The sale added $122 million, net of income taxes, to fiscal fourth-quarter earnings. Alberto-Culver then acquired the Noxzema skin-care brand from

Procter & Gamble

(PG) - Get Report

.

For years, rumors have circulated about takeovers by larger consumer-staples companies. But Alberto-Culver is content to run as a stand-alone. Despite a perpetual reshuffling of its products, it has consistently increased profit and rewarded shareholders. Over the past three years, earnings per share grew 12% annually, on average. In congruence with profit growth, its stock has returned 9% a year since 2004, outpacing the

S&P 400 Midcap Index

and the

S&P 400 Consumer Staples Index

.

Fiscal fourth-quarter earnings per share jumped 60% to 32 cents. Management raised the quarterly dividend to 8 cents a share. At its current price, the stock yields just 1%, less than those of consumer-staples giants

Colgate-Palmolive

(CL) - Get Report

and

Kimberly-Clark

(KMB) - Get Report

. Still, its payout ratio, a measure of dividend safety, is in comfortable territory at 27%, indicating room for dividend growth.

Defensive stocks are in vogue as 2010 approaches and investors come to terms with suboptimal investment prospects. Alberto-Culver is worthy of consideration. Its stock trades at a slight discount to the average personal-products company based on projected earnings and cash flow. And its book value is 71% less than the personal-products average.

The company's balance sheet holds $470 million of cash and short-term investments and less than $1 million of debt. A quick ratio of 2.5 should reassure skeptical investors. Granted, the recently announced acquisition will cut a sizable portion of cash, but Alberto-Culver will remain a minimally levered business. We give the company a financial-strength score of 9.4 out of 10 and a growth grade of 8.2 out of 10. Both figures dwarf their peer averages.

-- Reported by Jake Lynch in Boston.