Hain Celestial Group (HAIN) announced on Monday that it had appointed Wendy P. Davidson to succeed Mark L. Shiller as President and CEO of the organic and natural foods producer. 

Davidson starts her new role on Jan. 1, 2023, with Shiller moving into a non-executive position on the company’s board of directors. As a result of Davidson’s hiring as CEO, she will join the board. It now has nine directors. 

“Mark has played an instrumental role in simplifying the Company and instilling greater operational discipline throughout the organization, and we are foundationally stronger as a result. We look forward to his continued contributions and insights as a member of our Board,” stated the company’s press release announcing its succession plan.

Davidson’s experience makes her an excellent choice to succeed Shiller. 

Investors didn’t see the surprise succession announcement in the same light. Its shares dropped more than 11% on Monday. Hain Celestial’s current valuation is lower than it’s been since 2018. Now would be an excellent time to consider buying its stock. 

Here’s why I feel this way and how option investors can play this good news. 

Who Is Wendy Davidson?

As Davidson’s profile page for the First Horizon (FHN) board of directors states, “Wendy P. Davidson has been the President-Americas for the Performance Nutrition segment of Ireland-based Glanbia plc, a global nutrition company, since November 2020.”

Before that, Davidson was President of the Kellogg Company’s (K) Away from Home division for seven years. She came to the Kellogg role after various positions over three years at McCormick & Company (MKC). Davidson joined McCormick in 2010 after 16 years at Tyson Foods (TSN), where her last position was Senior Vice President and General Manager of its Prepared Foods division. 

This woman has nearly 30 years of senior management experience with some of America’s largest food businesses. She has served on the board of First Horizon since 2019. Her experience makes her more than qualified to lead Hain in its next growth phase. 

As I stated in the opening, the succession plan caught investors off guard but shouldn’t have. Shiller joined the company as CEO in November 2018. He came to Hain from Pinnacle Foods, where he was Chief Commercial Officer. Hain’s proxy says Shiller is 60. Davidson is eight years younger, the perfect age to take over the CEO position.

“We are excited to welcome Wendy as our new CEO. Her global CPG experience and successful track record in driving growth, reducing complexity, and developing talent are key to accelerating the transformative work that the leadership team has undertaken to launch our Hain 3.0 strategym,” stated Dawn Zier, Hain’s Chair of the Board. 

Davidson is an excellent hire. 

However, she’s got a tough challenge ahead of her if the company’s Q1 2023 results are any indication.

Hain’s Results Were Down Across the Board

The company reported its first-quarter results on Nov. 8. They were a mixed bag. I’ll deal with the bad parts first and then the more positive aspects of its report. 

Net sales decreased by 1% in the quarter, excluding special items, to $439.4 million. Its adjusted gross margin was 21.5%, 240 basis points lower than a year earlier, while its adjusted net income was $9.2 million, down considerably from $23.8 million a year earlier. 

However, Schiller stated in its conference call that the company did better than expected in the quarter. 

“We’re pleased to report that we exceeded our constant currency margin and EBITDA guidance in Q1 and showed material sequential improvement. As a result, we are reaffirming our annual profit guidance with the continued caveats that we expect Europe to be unusually volatile and that our anticipated total fiscal year profit growth is skewed to the back half,” Schiller said.  

Shiller pointed out that its North American sales were nearly 9% higher in the first quarter, with many of its growth brands gaining market share in terms of units and dollars. Its North American sales accounted for approximately two-thirds of its revenue in Q1 2023. 

That’s excellent news. 

And, as Schiller stated, it expects North America to continue delivering healthy growth through high prices and volumes. 

Davidson is taking the helm of a business whose best days are ahead of it despite the near-term performance issues in Europe. 

Why Buy Hain Stock Now?

Hain stock has lost more than 56% of its value year-to-date. That’s triple the loss of the S&P 500. It hasn’t traded consistently below $20 since late 2018. Its valuation bears this out. 

The company has a price-to-sales ratio of 0.89, 37% lower than its five-year average of 1.41. Its earnings yield is 3.49%. It hasn’t been this high since 2016. By virtually every financial metric, it’s cheaper than it’s been for years. 

According to Barchart.com data, the nine analysts covering its stock give it a Moderate Buy rating -- that’s 4.22 out of 5.0, but down from 4.70 three months ago -- with a Mean Target price of $24.78, 33% higher than its current share price. 

The 11% one-day drop in its share price on the succession news was a big overreaction by investors. 

Option investors should take advantage of this overreaction by buying some of the Feb. 17/2023 $21 call contracts that expire in 80 days. The premium is $75 or just 3.6% of the $2,100 you’ll have to pay for the 100 shares should you exercise your right to buy before they expire.  

The delta is 0.31722 with a breakeven of $21.75, 16.5% higher than where it’s currently trading. A $3.11 move to breakeven before the expiry in February will more than double your money on the premium if you sell the contract before exercising. 

The downside: volume on the contract is almost non-existent, with an open interest of just 104. 

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