Free, unbiased analysis & opinion on small & micro cap stocks
    A Real Sleeper
    April 3, 2012  PSW Staff
    Kid Brands, Inc. (NYSE: KID) designs, imports, markets, and distributes infant and juvenile consumer products. It
    offers infant bedding and related nursery accessories and decor, such as blankets, rugs, mobiles, nightlights,
    hampers, lamps, and wall art under the Kids Line, Carter's, Disney, CoCaLo Baby, CoCaLo Couture, and
    CoCaLo Naturals brands; and kitchen and nursery appliances, food preparation products, diaper bags, and
    spa/bath products under Kids Line and CoCaLo brands. The company also provides cribs, mattresses, and
    other nursery furniture under the Babi Italia, Europa Baby, Bonavita, Graco, and Serta brands; and developmental
    toys, as well as feeding, bath, and baby care items for infants primarily under the Sassy, Carter's, and
    Garanimals brands. Kid Brands, Inc. sells its products primarily to retailers. It sells its products directly, as well
    as through a distribution network in the United States, the United Kingdom, and Australia; and through
    independent representatives and distributors internationally. The company was formerly known as Russ Berrie
    and Company, Inc. Kid Brands, Inc. was founded in 1963 and is based in East Rutherford, New Jersey.

Ridiculously low valuations, more often than not, are the result of events with potential to prove the underlying
data is false, or will be significantly different in the near future.  These events include things like violations and
fines, lawsuits and poor performance, KID just happens to have all of them.  With these kind of stories, you need
to ask yourself one question before getting involved.  Is the low stock price just the tip of the iceberg, or is it
already at rock bottom.  In the case of Kid Brands, a good deal of evidence seems to support the later.

A perfect storm of disasters have recently struck this company, including an announcement that prior year
restatements are to come in response to SEC scrutiny regarding potential customs violations as well as a law
suit from the party that was fired for the alleged violations.  Meanwhile, the company has experienced margin
problems and subsequent poor performance due to sale and close-out pricing on most of its merchandise last
year.  The stock seems to have been taken down to a valuation level that implies certain death, however the
realistic worst case scenarios and outcomes for these situations do not even look to affect results all that much.  
The worst may be already more than priced into this stock as a P/E that was below five before a dreaded negative
quarterly report was released on Friday only jumped to ten.  Nothing seems to be threatening expected earnings
this year in the fifty cent range, bringing that P/E back down to 5.

Raphael Benaroya, Executive Chairman and acting CEO, commented, "The Company's sales and earnings
performance in 2011 was unsatisfactory. Financial results were impacted by a decline in sales to a key customer,
certain new product initiatives outside our core business that did not deliver anticipated results, expenses that
were not in line with sales, and significant non-operational distractions related to customs matters. However, the
Company is now focused on the areas of product, sales, margin and expenses and, in the fourth quarter of 2011,
embarked on programs to refresh key product lines, assess selling practices and reduce inventory and
expenses. We continue to believe that Kid Brands operates in an attractive market and has potential for growth.
While the Company still has a great deal of work ahead, there have been positive results from these efforts in
recent months, and we have much greater expectations for our performance in 2012 versus 2011."

Keep in mind that Kid brands is a tiny company, worth only around $50 million, and should experience
challenges with margins and other areas when trying to grow, mainly because it cannot compete with the big
boys.  Nevertheless, KID's earnings are expected to grow 17% per year for the next five years.  The company has
a solid history of earnings, as well as a history of keeping debt in check.  Shares outstanding have remained at
around 20 million for over a decade.

The company just does not seem to be in the dire straits that the stock price implies.  A PEG of 0.22, a price to
sales ratio of 0.21 and price to book of 0.45 are all ratios that are in no danger of changing all that much without
price movement, as the P/E is in the midst of doing.  Whether the P/E is 5 or 10, its still on the lower end of a five
year range where the high was in the 30's.  We would look for this stock to at some point when the dust settles a
little bit, quickly work its way back up to book value at least, which is $5.80, and then perhaps on to $7.00 or so.  
We would look to pick up some shares anywhere between $2.25 and $2.75 and would trail a stop loss about 75
cents to a dollar below, with $2.00 being the absolute floor.  As far as a time horizon goes, we believe it would be
fairly evident to investors as to how things are going to go for 2012 within the next couple of months, meaning that
if the stock is at the same place or lower three or four months from now, and we see more restatements, lawsuits
and poor performance, we would definitely step out.
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