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Bull Of The Day: Clorox (CLX)

Daniel Laboe

The novel coronavirus is forcing people to clean up their act, and Clorox (CLX) is leading the charge. The panic buying of Clorox’s cleaning supplies and consumer staples led to the stock’s initial pandemic driven rally, but I think this uptick in sales is going to be more long-term than the market is pricing in. Analysts are pushing their EPS estimates up for the next three years propelling CLX into a Zacks Rank #1 (Strong Buy).

This pandemic is changing society and the way we operate. The world is going to become much more germ sensitive. Being a “germ freak” is going to be the new norm, and Clorox stands to gain. The panic buying that Clorox has seen this quarter is just the beginning of the topline growth to come.

Business Overview 

Clorox is a global brand with a diverse portfolio of products that goes far beyond its disinfectant wipes. This enterprise is a category leader in charcoal, bleach, water filtration, premium trash, wipes, and even salad dressing. One of Clorox’s family of products can be found in 9 out of 10 US homes and a growing international presence (roughly 15% of sales and growing).

The firm’s portfolio is separated into 4 segments: cleaning (34% of sales), household (30%), lifestyle (20%), and international (16%). Cleaning makes up the majority of Clorox’s bottom line, and I suspect that this segment will be the company’s biggest growth driver in our novel “germ freak” society.

The company is dedicated to driving shareholder returns with consistent share price appreciation, stock buyback programs, and a cushy 2.5% dividend yield that has grown annually for the past 2 decades. According to the firm’s most recent investor presentation, over the past 5 years, CLX has driven shareholder returns of 91%, far outpacing the S&P 500’s 66% and its lagging cohort’s 50%.

Risk

Despite Clorox’s category leadership in most of its segments, it is competing with private-label products, that are typically less expensive. Some bargain shoppers may choose the private label products in these uncertain times, but Clorox still has the brand advantage.

The stock's low beta suggests that even in times of economic uncertainty, people will still choose Clorox products over competitors because they know it’s a brand they can trusted. During the pandemic panic, I suspect that Clorox’s brand trust & loyalty will continue to drive its growth.

CLX is trading at its highest forward P/E multiple in over two decades, which gives this stock some added risk. I think that this rich multiple is mostly justified for this high-yielding safe-haven stock.

Stock Performance 

CLX has traded all over the board since the pandemic panic began, falling down below $160, then surging up over $210. The stock has since settled down to the mid $160s.

The Clorox Company Price, Consensus and EPS Surprise

The Clorox Company Price, Consensus and EPS Surprise

The Clorox Company price-consensus-eps-surprise-chart | The Clorox Company Quote

Take Away

CLX is a safety play for your portfolio and provides long-term potential. I am not banging on the table screaming buy at this price, but I think that this high yielding equity could help curb some of your portfolio’s market risk in these uncertain times.

The world is going to be much more germ sensitive in the years to come, and Clorox is well-positioned for this consumer transition.

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