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Get ready for a nice bounce in Rubbermaid shares Add to ...

Investor enthusiasm for J.C. Penney has only dimmed slightly since the company announced it would hire Ron Johnson, head of Apple Inc.'s retail stores, as its next CEO. Up more than 17 per cent on the June 14 announcement, the retailer maintained the gains for the remainder of June.

Clearly, Wall Street thinks Mr. Johnson can bring more than a little bit of Apple's mojo to a Middle American retailer that has needed a turnaround every decade or so just to keep pace with other U.S. department store chains. The share price, even with a retreat in recent days, makes J.C. Penney's stock one of the pricier options among American retailers.

There is, however, another consumer-focused company that has made a CEO switch that garnered far less attention - and price appreciation - than J.C. Penney's move. When Newell Rubbermaid maker of the plastic food storage containers and so much more, hired Unilever's Michael Polk as CEO, the shares barely moved.

That left Newell Rubbermaid shares remarkably cheap among the universe of consumer goods stocks - and gives investors an opportunity to profit by buying a company - unlike J.C. Penney - where the turnaround isn't already priced in.

Now, to be fair, there are the typical reasons why investors have punished Newell Rubbermaid. The company had a minor revenue expectations miss in the first quarter, setting the shares on a downward path compared to its peers. The company prematurely reiterated its 2011 earnings guidance in that April announcement, then embarrassingly retreated in early June, setting its earnings-per-share numbers lower.

The one-two punch of disappointments means Newell Rubbermaid is down nearly 12 per cent in 2011 and more than 20 per cent off its 52-week high. And it means that Newell Rubbermaid's price-to-forward-earnings ratio has slipped below 10, while many other consumer products companies trade above 15.

"[The]shares' significant year-to-date underperformance versus the market/peers and the cheap valuation … suggest to us that further downside risk is now limited, with much of the bad news already priced in," said Raymond James analyst Budd Bugatch, who has a "strong buy" rating and a target price of $19 on the stock. "We believe investor expectations are low, potentially setting the stage for pleasant surprises as the year unfolds."

In addition to its Rubbermaid line, the company makes Calphalon cookware and Graco baby products as part of its "home and family" segment, which brings in about 40 per cent of the company's revenue. Another 30 per cent comes from office products such as Sharpie markers and Paper Mate pens; a tools, hardware and commercial products group provides the remaining 30 per cent of sales.

Steps to Grow Faster

Barclays Capital analyst Lauren Lieberman, who has an "overweight" rating and $20 target price, believes "momentum across most of [Newell Rubbermaid's] portfolio and its brands remains intact" with all business units other than Baby & Parenting "trending at a very healthy 4- to 5-per-cent growth rate."

Baby products have been reporting 10-per-cent sales declines this year largely because of money-saving consumers using more hand-me-downs and borrowed items, Ms. Lieberman says, but Newell Rubbermaid is taking steps to fix the problem with the value-priced line "Century by Graco" launching in Wal-Mart and other retailers in the second half. "Restoring growth to the category is a priority for manufacturers and retailers alike," she says.

Mr. Polk, the new CEO, was an eight-year veteran of Unilever, rising to its executive board and serving as president of Global Foods, Home and Personal Care. He'd also been on Newell Rubbermaid's board since 2009. His appointment June 23 produced a 2-per-cent bump in the company's share price.

"We like that he has the perspective of working for a large global [consumer products]company, but also has intimate knowledge of [Newell Rubbermaid] given his tenure on the board," says Citigroup Global Markets Inc.'s Wendy Nicholson.

Ms. Nicholson notes that Newell Rubbermaid has "a challenging road ahead" and believes it deserves to trade at a 10-per-cent discount to the Standard & Poor's 500 - but her 2012 earnings estimate, combined with Citi's forecast for the S&P 500, yields her target price of $20 and a "buy" rating.

As for J.C. Penney? Even after shedding about 5 per cent of its value since Wednesday, its P/E is nearly 15. That's higher than Kohl's Corp., Macy's Inc., Target Corp. and Wal-Mart Stores Inc., all of which trade between 11.5 and 12.5 times forward earnings, according to Standard & Poor's CapitalIQ.

It seems much of what Mr. Johnson can deliver is already reflected in the shares; at Newell Rubbermaid, Mr. Polk has room to gain.

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