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Why Goldman Sachs Turned Negative on Clorox Stock

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Dec. 4 2020, Updated 10:53 a.m. ET

Clorox downgraded to “sell”

Goldman Sachs downgraded Clorox (CLX) stock to “sell” from “neutral” and lowered the target price to $112 from $127. Analyst Jason English of Goldman Sachs stated that Clorox stock is trading at a high valuation multiple, while its organic sales and earnings remain at risk. Following the downgrade, Clorox stock fell 4.1% and closed at $129.53 on July 18.

English added that Clorox’s volume growth rate is expected to decelerate as the company increases pricing. Continued margin headwinds from input cost inflation and deceleration in volumes growth could weigh on Clorox’s earnings.

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Clorox is one of the few CPG (consumer packaged goods) companies that has managed to improve its pricing. The company’s innovation-led brands are mostly category leaders. However, the heightened competitive environment and retailers’ aggressive push for private label products would make it tough for CPG manufacturers to pass on the pricing to the consumers.

Currently, Clorox stock is trading at a forward PE multiple of 21.6x as of July 18, which is ~19% higher than the peer group average of 18.2x. The company’s current valuation multiple is also higher than the Consumer Staples Select Sector SPDR ETF’s (XLP) forward PE multiple of 19.0x.

Stock performance

We think that persisting sales and margin headwinds for CPG companies probably won’t subside soon and could continue to weigh on the companies’ stock prices. Jefferies downgraded Procter & Gamble (PG) stock. The company’s earnings remain at risk due to cost headwinds.

Clorox, Procter & Gamble, Colgate-Palmolive (CL), and Kimberly-Clark’s (KMB) share prices have fallen 12.9%, 13.2%, 14.1%, and 13.9% on a YTD basis as of July 18. They underperformed the SPDR S&P 500 Trust ETF (SPY), which has risen 5.3%.

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