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3 reasons why coronavirus outbreak makes bleach king Clorox shares a buy: UBS analyst

·Anchor, Editor-at-Large
·2 min read
In this article:
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There may still be time to clean up on Clorox’s (CLX) stock as the bleach maker’s products are purchased aggressively to help fight off the coronavirus.

Lower oil prices should help the bottom line, too.

“Based on conversations with retail buyers, we estimate COVID-19 related demand could boost baseline disinfectant category trends by 3-5x in the next few months as retailers work to rebuild inventory and stay in stock,” reasons UBS analyst Steven Strycula. The analyst lists three reasons why Clorox’s earnings could be boosted by as much as 40 cents a share this fiscal year.

First, disinfectant products such as bleach and wipes represent about 25% of Clorox’s sales and stand to see a lift from consumers’ who are stocking up on the items. Just head to Instagram to see the coronavirus hoarding of cleaning products well underway at major retailers Target, Walmart and Costco.

Secondarily, increased cleaning product demand and retailer out of stocks may reduce the amount Clorox needs to spend on advertising. Recall Clorox has stepped up its marketing and promotions in recent quarters to jumpstart its sales in what has become a more competitive industry. And lastly, the crash in crude oil will probably drive resin costs (about 15% of Clorox’s cost of goods sold, notes Strycula) down a good bit.

Clorox bleach disinfecting wipes on shelf in grocery store, graphic element on black
Clorox bleach disinfecting wipes on shelf in grocery store, graphic element on black

Despite coming tailwinds to Clorox though, Strycula believes they are priced into the stock’s valuation. Shares of Clorox have surged 15% this year compared to a 24% dive for the S&P 500. The stock is priced at a 70% premium to the S&P 500 on a price-to-earnings multiple basis, Strycula notes.

But Strycula’s view is the minority view on Clorox at the moment.

Clorox’s stock has caught three sell-side upgrades to Buy since early February — meanwhile one shop reiterated its Buy rating. Given the possibility for further analyst rating upgrades and indications coronavirus will be here to stay for some time, it’s hard to not view Clorox as a staple in the portfolio.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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