Two Small Alternatives to Johnson & Johnson

In an industry typically dominated by large conglomerates like Johnson & Johnson (NYSE: JNJ  ) , smaller consumer goods companies like Church & Dwight (NYSE: CHD  ) and Prestige Brands (NYSE: PBH  ) are welcome alternatives. Although relatively small in size, the two companies' brand lineups are robust. As such, Church & Dwight and Prestige Brands represent two of the most well-rounded investments in the space.

Strong brand recognition
Similar to what Johnson & Johnson has done over the years, both Church and Dwight and Prestige Brands have acquired and subsequently strengthened valuable brands over time. Here is a look at all three companies' popular brand lineups: 

Church & Dwight

Johnson & Johnson

Prestige Brands

Arm & Hammer

Tylenol

Luden's

Trojan

Clean & Clear

Clear Eyes

OxiClean

Neutrogena

Chloraseptic

First Response

Listerine

Comet

Nair

Visine

PediaCare

Each company has many more brands in its respective lineup, but the top five listed above are all brands that most consumers are probably familiar with. This is important, as it is a customer's familiarity with everyday products that sustains and reinforces demand.

While Johnson & Johnson clearly has the most robust stable of brands with popular brands like Band-Aid, Rogaine and Motrin were left out; it is impressive that both Church & Dwight and Prestige Brands have brands that are relatively comparable to some products in the Johnson & Johnson lineup.

For Church & Dwight, the cleaning segment has been particularly strong lately. With popular detergent brands like Arm & Hammer and XTRA, which both grew market share in the recently reported third quarter, management at Church & Dwight recently explained that the company is now a leader in laundry detergent. CEO James Craigie stated, "The strong consistent share growth on both of these brands has enabled Church & Dwight to increase its liquid laundry detergent market share by 50% over the past 5 years and become the #2 laundry detergent company in America." 

Meanwhile, Prestige Brands has experienced great success in fiscal 2013 with its cough and cold brands. At an investors conference in June , management revealed that the Luden's brand was positioned as the No. 1 throat drop in the space. Similarly, the company's Chloraseptic brand was positioned as the No. 1 liquid lozenge. Effectively, Prestige Brands has a strong grip on the lozenge space of the cough and cold segment.

Solid growth
Strong brand names have contributed significantly to the growth of both companies. The following is a breakdown of the projected 2014 growth rates of Church & Dwight and Prestige Brands alongside those of Johnson & Johnson: 

Company

Church & Dwight

Johnson & Johnson

Prestige Brands

Revenue Growth 2014

4.3%

4.2%

2.3%

EPS Growth 2014

10.7%

6.8%

9.3%

As the data above indicates, all three companies are projected to grow earnings per share much faster than revenue in 2014. However, Church & Dwight is projected to experience revenue and EPS growth next year that is slightly better than both listed competitors.

When we take into account the companies' valuation levels, all three appear fairly valued in relative terms. However, Church & Dwight is the most expensive with a forward P/E of 21.2 and Johnson & Johnson is the cheapest with a forward P/E of 16.04. Prestige Brands falls squarely in the middle with a forward P/E of 19.08. 

Dividends
Johnson & Johnson leads both competitors in terms of dividend yield. The consumer goods giant currently pays an annual dividend of $2.64, equal to a yield of 2.8%. Church & Dwight's annual dividend of $1.12 is equal to a respectable yield of 1.7%.

However, what Church & Dwight lacks in yield it more than makes up for in dividend growth. The company has been just as consistent as Johnson & Johnson with regard to raising its dividend at consistent intervals. Both companies have increased their dividends each year for the last decade.

Where Church & Dwight leads Johnson & Johnson is in the rate at which it increases its dividend. Over the last ten years, the company has achieved an annual dividend growth rate of over 25%, which is significantly better than Johnson & Johnson's 11.8% growth rate in the same time period. 

Unfortunately, Prestige Brands does not pay dividends at this time.

Conclusion
It is clear that large size is not a prerequisite for success in the consumer goods segment. While not better in all aspects, both Church & Dwight and Prestige Brands are still viable investment alternatives to consumer goods stalwarts like Johnson & Johnson.

Church & Dwight offers the most growth out of the group but trades at more expensive valuation multiples as a result. Prestige Brands falls short in the dividend category but manages to make up for it with solid earnings growth and cheaper valuation. Since they are still relatively small, both companies should remain quality long-term holdings and viable growth alternatives to Johnson & Johnson in the consumer goods space.

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