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Will High Valuation Stall the Uptrend in CHD Stock?

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Sep. 18 2018, Updated 8:02 a.m. ET

Recent performance

Shares of Church & Dwight (CHD) are up 18.7% on a YTD (year-to-date) basis as of September 14, reflecting double-digit growth in the company’s top line over the past four quarters. Church & Dwight has outperformed industry giants like Procter & Gamble (PG) and Kimberly-Clark (KMB) with its stellar sales growth rate.

Higher organic sales volumes and incremental sales from recent acquisitions have been driving Church Dwight’s top line. Lower taxes and strong sales have led to double-digit growth in the company’s EPS in the half of 2018.

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Valuation could stall the upside

Church & Dwight stock is trading at 26.1x the fiscal 2018 EPS of $2.28. The company’s valuation looks expensive, based on the projected growth rate of 17.5% in fiscal 2018. Also, Church & Dwight stock is trading at a premium to the peer group average of 20.6x. Analysts expect the sales and earnings growth rate for Church & Dwight to decelerate significantly in fiscal 2019.

Given the company’s high valuation multiple, the anticipated decline in the growth rate, and the planned increase in marketing spending and cost headwinds, the upside to CHD stock seems limited.

Among analysts covering CHD stock, 11 recommend a “hold,” five suggest a “buy,” and five maintain a “sell” rating. Analysts’ consensus target price of $55.28 per share indicates a downside of 7.2%, based on the stock’s closing price of $59.55 on September 14.

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