Here's Why You Should Consider Investing in Clorox (CLX)
The Clorox Company CLX currently boasts robust prospects based on the strong demand environment, digital investments, pricing actions and focus on cost management. Its IGNITE strategy also bodes well.
This Zacks Rank #1 (Strong Buy) company has a market capitalization of $19.4 billion. In the past six months, it has gained 6.1% against the industry’s decline of 2.5%.
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Let’s delve into the factors that have been benefiting this manufacturer of consumer and professional products for a while now.
Business Strength: Clorox has been benefiting from strength across its Health and Wellness, Household and Lifestyle businesses, supported by solid demand for its products. For instance, in the third quarter of fiscal 2023, the company’s net sales increased 6% year-over-year and improved 8% on an organic basis. The increase in sales was driven by a favorable price mix and improved service levels.
Strength across the core International business has also been acting as a tailwind for the company. With respect to the exploration of international opportunities, the company acquired a majority stake in its joint venture in the Kingdom of Saudi Arabia in July 2020. The acquisition has been boosting its growth prospects in the international segment. In third-quarter fiscal 2023, organic sales for the International segment improved by 1%, while organic sales for the segment improved by 14%.
CLX also stands to benefit from its solid innovation pipeline, digital transformation, supply-chain optimization efforts, pricing and cost-saving actions. Driven by these factors, it envisions year-over-year net sales growth of 1-2% and anticipates organic sales to increase by 3-4% for fiscal 2023. The adjusted earnings are envisioned in the range of $4.35-$4.50 per share for fiscal 2023, suggesting a year-over-year increase of 6-10%. The gross margin is expected to increase by 250-300 basis points (bps) in fiscal 2023.
Benefits From IGNITE Strategy: Clorox has been progressing well with the IGNITE strategy, which focuses on expanding the key elements under the 2020 Strategy to pace up innovation in each area of business. Under the IGNITE strategy, the company aims to achieve its long-term financial targets. This includes achieving net sales growth of 3-5%, EBIT margin expansion of 25-50 bps and free cash flow generation of 11-13% of sales.
Streamlined Operating Model: Management has also been implementing a streamlined operating model, which will likely boost the company's ability to respond more quickly to changing consumer behaviors, innovate faster and increase future cash flow. Once fully implemented, the company expects this operating model to generate cost savings of about $75 million to $100 million annually. For fiscal 2023, savings from this plan are likely to be $35 million year over year.
Shareholder-Friendly Policies: Clorox remains focused on rewarding shareholders handsomely through dividend payouts. For instance, in the first nine months of fiscal 2023, the company paid out dividends worth $437 million.
Other Key Picks
Some other top-ranked stocks are Urban Outfitters, Inc. URBN, Abercrombie & Fitch Co. ANF and Nomad Foods Limited NOMD, all of which sport a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Urban Outfitters is a lifestyle specialty retailer that offers fashion apparel and accessories, footwear, home décor and gift products.
The Zacks Consensus Estimate for Urban Outfitters’ current financial-year sales and earnings per share suggests growth of 5.1% and 57.1%, respectively, from the corresponding year-ago reported figures. URBN has a trailing four-quarter earnings surprise of 12.2%, on average.
Abercrombie & Fitch operates as a specialty retailer of premium, high-quality casual apparel for men, women and kids.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 3.3%. Its earnings per share are expected to rise by 712% from the corresponding year-ago reported figures. ANF has a trailing four-quarter earnings surprise of 480.6%, on average.
Nomad Foods manufactures and distributes frozen foods. The company has a trailing four-quarter earnings surprise of 8.5%, on average.
The Zacks Consensus Estimate for NOMD’s current financial year sales suggests growth of 8%, while earnings are likely to decline 3.4% from the prior-year reported numbers.
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