ADDING HALF POSITION IN SALLY BEAUTY INC AT $22.22 (SBH-US)
Sally Beauty Holdings, Inc. is an international retailer and distributor of beauty supplies with operations in North America, South America and Europe. The Company operates through: Sally Beauty Supply and Beauty Systems Group (BSG). Sally Beauty Supply is a domestic and international chain of cash and carry retail stores, which offers beauty supplies to both salon professionals and retail customers primarily in North America, Puerto Rico, and parts of Europe and South America. BSG, including its franchise-based business Armstrong McCall, is a full service beauty supply distributor, which offers professional brands of beauty products directly to salons and salon professionals through its own sales force and professional-only stores (including franchise stores) in North America and parts of Europe.
JUSTIFICATION: We like the defensive nature of the beauty supplies business, note in the chart below how the earnings did not suffer during the 2008-2009 credit crisis. We like the low PE multiple of 13X earnings and the growth rate in earnings of 9%. We also like that the business is 83% focused in the US (better to be in Trump’s good books). The shares should return to a higher multiple as the earnings improve. The Purple Chips 12 -18 month target is $30.00.
