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Buoyed by impressive third-quarter 2012 results and an optimistic outlook, we have adopted a bullish stance on The Hain Celestial Group Inc. (HAIN). We upgraded our recommendation to Outperform from Neutral with a target price of $55.00.

Fabulous Quarter, Upbeat Guidance

Rise in consumption, innovative marketing and expanded distribution facilitated Hain Celestial to post third-quarter 2012 earnings of 54 cents a share that surpassed the Zacks Consensus Estimate of 50 cents. The reported earnings jumped 50% from 36 cents a share delivered in the prior-year quarter.

Higher demand for natural organic products proved to be a boon for the company, as the quarterly revenue rose 31.5% year over year to $379.4 million. However, including sales of the United Kingdom private label chilled ready meals operations (discontinued business), revenue came in at $400.3 million, up 39% year over year. The Zacks Consensus Estimate was $405 million for the quarter.

Buoyed by better-than-expected bottom-line results management raised its fiscal 2012 earnings guidance in the range of $1.76 to $1.80 per share from its previous guidance of $1.63 to $1.73. The company now expects sales to be in the range of $1.40 billion to $1.41 billion, reflecting adjustment for the discontinued operations of private label chilled ready meals.

A Healthy Option for Wealth

A leader in natural food and personal care products categories with an extensive portfolio of well-known brands, Hain Celestial offers investors one of the strongest growth profiles in the industry. The stock is poised to surge as the economy gradually revives and appetite for organic foods gets bigger.

Hain Celestial continues to remain a healthy option for the investors. Shares of the company have portrayed an upward trend so far this year, giving a return of 45.9% considering the last traded price of $53.02 on June 27, moving closer to its 52-week high of $57.42.

The Company Counts Upon

We believe that the company remains well positioned to capitalize on the growing global demand for organic products. During the third-quarter 2012 earnings call, management hinted that consumption in the U.S. grew 9% with an 11% growth witnessed in sales, which is quite a good number in this scenario.

The company registered increased consumption in core categories with robust contribution from Earth's Best, Celestial Seasonings, Imagine, MaraNatha, Garden of Eatin', Sensible Portions, The Greek Gods, and JASON brands. Hain Celestial also experienced solid sales across recently-acquired brands.

Acquisitions have been a key part of the company’s strategy to build market share. Not only did buyouts expand Hain Celestial’s geographic reach, but also brought in opportunities to cross-sell its products in the U.S., Canadian, and European markets. Notably, a healthy balance sheet enables the company to target strategic acquisition opportunities.

Following its growth plan, Hain Celestial completed the acquisition of U.K.-based marketer and manufacturer of fresh and frozen foods, Daniels Group ("Daniels"). Adding to the string, the company announced the acquisition of Cully & Sully Limited in Ireland. The acquisition is expected to amplify the sales of the company as it provides a gateway to a sturdy food and grocery market that is swiftly gaining ground.

Moreover, Hain Celestial has undertaken a number of initiatives to improve its performance and has put itself on the growth trajectory. The company’s Stock Keeping Unit (“SKU”) rationalization program has helped to eliminate SKUs, which had lower sales volume or weak margins. Management focuses on improving profitability through new product introductions while reducing costs.

Holds Zacks #1 Rank

The company’s strong fundamentals and favorable outlook are compelling even in a volatile market. Hain Celestial, which competes with General Mills Inc. (GIS) and Kraft Foods Inc. (KFT), holds a Zacks #1 Rank that translates into a short-term ‘Strong Buy’ rating.

 
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