Newell Rubbermaid: Ready to Bounce Back?

The performance of Newell Rubbermaid's stock the past decade has been about as exciting as watching plates dry in one of the company's plastic dish drainers. The company makes other prosaic consumer items, such as storage containers, Parker ballpoint pens, Irwin and Shur-Line hardware and Levolor blinds. But that doesn't bother Dave Williams, the savvy manager of Excelsior Value Restructuring. He thinks Newell's stock, which has climbed only 25% or so over the past ten years, is ready to take off.

Williams is confident that new CEO Mark Ketchum will help rejuvenate the company. He is impressed by Ketchum's background, which includes five years running Procter Gamble's baby- and family-care business. "Newell has a lot of good brands; they just haven't executed well," says Williams, whose fund has beaten Standard Poor's 500-stock index 11 out of the past 13 calendar years. "If you slice and dice the company, its assets are worth more than $30" a share, says Williams. That's significantly above Newell's current share price of just under $26.

The big problem for Newell is that it sells largely to an increasingly small number of high-volume retailers who are loathe to accept price increases. The Atlanta-based company supplies such behemoths as Target, Wal-Mart, Office Depot and Lowe's. Fully 14% of 2004 sales were to Wal-Mart. Because of ruthless competition, "this is a relatively low-margin business," Williams says. But supplying the likes of Wal-Mart is not necessarily a negative, he argues. "If you do well by Wal-Mart, they take care of you," says Williams.

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What's more, Newell has dumped some products with lower profit margins while adding lines with higher margins. That should lead to improved profitability overall, says Williams. He thinks that Newell has the potential to increase earnings by 12% annually.

The stock (NWL), meanwhile, looks cheap. It trades at 16 times this year's average analyst estimate of $1.59 per share and 15 times next year's estimate of $1.71, according to Thomson First Call. Since 1990, the price-earnings ratio has generally ranged from the high teens to the low 20s.

--Steven Goldberg