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Clorox Hits 52-High Mark Yet Again

Zacks Equity Research

Sturdy past performances and an upbeat outlook facilitated the shares of The Clorox Company (CLX) to reach a new 52-week high of $77.10 on Tuesday, Jan 22, beating its previous 52-week high of $76.77 attained on Jan 14. This Zacks Rank #3 (Hold) global consumer product company eventually closed at its highest mark yesterday, representing a healthy return  of 11.4% over the past one year. Average volume of shares traded over the last 3 months stands at approximately 942,517.    

Drivers that Triggered Momentum

An impressive record of beating the quarterly earnings expectations, a positive fiscal 2013 outlook and a decent dividend yield are the strengths that pushed the shares of Clorox to new high.

With respect to earnings surprise, Clorox has been beating the Zacks Consensus Estimate for the last eight quarters, most recently topping by 6.3% in the first quarter of fiscal 2013.

Clorox reported first-quarter fiscal 2013 on Oct 31, 2012, with earnings per share coming in at $1.01, ahead of the Zacks Consensus Estimate of 95 cents but remained flat year over year. The company’s earnings benefited from improved revenue as well as gross margins, offset by higher selling and administration expenses as the company continues to invest in information technology (IT) systems.

Net sales elevated 2.5% year over year to $1,338 million, mainly on account of improved prices, offset in part by lower volumes and unfavorable foreign exchange.

Looking ahead, Clorox reiterated its sales growth forecast of 2%–4% for fiscal 2013, driven by better categories growth, market share gains and further product innovation across its brands. The company expects operating income margin to expand by 25 to 50 basis points in fiscal 2013, on the back of strong cost savings, the benefit of price increases and improved forecasts for commodity costs. Moreover, Clorox continues to expect earnings in the range of $4.20– $4.35 for fiscal 2013.

Clorox is also known for its shareholder friendly moves. In Nov 2012, the company announced a quarterly dividend of 64 cents per share, payable on Feb 15, 2013 to the shareholders of record as on Jan 23, 2013. This currently yields a solid 3.32%, while the company has a payout ratio of 59%.

Since 1983, the company has increased its dividend from 1.875 cents to 64 cents. We believe that its continuous dividend payment and increments reflect its earnings growth potential and cash flow generation capabilities.

Besides Clorox, other consumer products companies like Ecolab Inc. (ECL), Church & Dwight Co. Inc. (CHD) and Procter & Gamble Company (PG) remain focused on improving shareholder value by paying regular quarterly dividends.

Stock’s Key Indicators  

Clorox currently trades at a forward P/E of 17.9x, slightly above the peer group average of 17.8x. Again, its price-to-sales ratio of 1.8 is in line with the peer group average. Moreover, the company’s return-on-investment (ROI) and return-on-asset (:ROA) are 32.2% and 12.5%, respectively, which are significantly higher than the peer group average. The company’s strong fundamentals are well supported by its long-term estimated EPS growth rate of 8.4%.

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