Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why Are Analysts Hating on Clorox?

Worldwide powerhouse Clorox (NYSE: CLX  ) is an undisputed leader in the manufacturing and marketing of consumer products. It is home to some of the most popular brands that the majority of U.S. consumers use every single day. In fact, 90% of Clorox's brands hold the No. 1 or No . 2 ranking in their markets. However, the stock has faced several downgrades in recent weeks; analysts have used the words "overvalued" and "weak," but these are far from proper descriptors. Those who have downgraded the stock do not have flawless track records by any means, so let's do the research on our own and draw our own conclusions.

Recent downgrades

Date Agency Rating
Sept. 18, 2013 Barclays To equal-weight from overweight
Sept. 20, 2013 Credit Suisse To underperform from neutral
Oct. 17, 2013 Morgan Stanley To underweight from equal-weight 

Barclays' reason for downgrading was its belief that recent product developments would not impact Clorox's long-term growth. Credit Suisse cited weak category growth, increasing prices of raw materials, and competitive pressures when backing its underperform rating and price-target reduction to $78. Finally, Morgan Stanley piggybacked Credit Suisse's reasoning and added weak consumer spending in the United States.

However, I see Clorox's products only gaining strength over the next several years and retaining large market shares in several spaces. Increased raw materials prices can easily be passed on to the consumer because Clorox will not be the only company faced with this issue. When it comes to competition, Clorox has been facing the same top companies for decades. There has yet to be a major issue that management has not been able to handle. Finally, consumers will continue to spend money on necessities, like the products Clorox offers; if the thought of lowered consumer spending worries you, run away from luxury goods or high-end retailers, not household products. 

Today versus history
At today's price, Clorox is trading at 19.6 times its annual earnings of $4.31 reported on Aug. 1. Clorox has a five-year average price-to-earnings multiple of 16.73, which makes today's valuation slightly higher. However, 19.6 is still a reasonable multiple when you consider that competitors Procter & Gamble (NYSE: PG  )  and Kimberly-Clark (NYSE: KMB  )  are trading at multiples of 20.40 and 20.96, respectively. 

In this same report, Clorox affirmed its fiscal 2014 outlook. It expects to earn between $4.55 and $4.70; this is right in line with the consensus analyst estimates, which call for annual earnings of $4.58 per share. This earnings projection would make Clorox's forward multiple about 18.45. This is still slightly above Clorox's five-year average, but again, this is still in a reasonable range considering Procter & Gamble's 16.87 and Kimberly-Clark's 16.27 forward multiples. 

Free cash flow utilization at its finest
On top of the favorable forward estimates, Clorox is actively using its ample free cash flow to initiate share repurchases and pay dividends. The company reported $583 million in free cash flow for fiscal 2013, a 36% increase from 2012. In this same report, it announced the repurchase of 1.5 million shares for roughly $128 million. These buybacks reduce the amount of shares outstanding, which increases earnings per share for the remaining shares and makes them more valuable. Currently, Clorox pays a hefty 3.3% dividend. It has raised its dividend every year since 1977, and it is safe to assume this streak will continue. 

The bottom line
Clorox is a growing household products company with favorable forward estimates and a strong dividend. It has the potential to return a substantial amount to its shareholders via price appreciation and the aforementioned dividend. I would not be against this stock, and think it is a great opportunity for investment on any weakness.

Looking for more dividend picks?
Dividend stocks can make you rich. It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Read/Post Comments (1) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2013, at 10:45 PM, MaxTheTerrible wrote:

    "Clorox has a five-year average price-to-earnings multiple of 16.73, which makes today's valuation slightly higher. However, 19.6 is still a reasonable multiple when you consider that competitors Procter & Gamble (NYSE: PG) and Kimberly-Clark (NYSE: KMB) are trading at multiples of 20.40 and 20.96, respectively. "

    Alternatively, you could argue that the whole consumer products sector is overpriced right now as more and more people pile into defensive stocks in anticipation of a market correction...

    P.S. I have CLX in my RL portfolio (but I will not be adding to my position at current levels).

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2691691, ~/Articles/ArticleHandler.aspx, 9/29/2016 1:38:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,157.70 -181.54 -0.99%
S&P 500 2,154.61 -16.76 -0.77%
NASD 5,275.50 -43.05 -0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 1:22 PM
CLX $124.46 Down -1.56 -1.24%
The Clorox Company CAPS Rating: ****
KMB $125.28 Down -1.20 -0.95%
Kimberly-Clark CAPS Rating: ****
PG $87.88 Down -1.58 -1.77%
Procter and Gamble CAPS Rating: ****