Valuation could limit upside
While we’re impressed with the Clorox Company’s (CLX) better-than-expected earnings performance in the past several quarters, its cost headwinds and the expected slowdown in its sales make us skeptical. Clorox stock is trading at a forward PE multiple of 24.1x, which looks unattractive given its projected growth rate of 6.3% for fiscal 2020.
We expect innovations and higher pricing to support Clorox’s top line. However, currency volatility and distribution losses in the bags and wraps business are expected to restrict the company’s growth rate. Its bottom line is also likely to benefit from higher pricing, cost savings, and share repurchases. However, an anticipated slowdown in its sales growth rate and cost headwinds could limit its EPS growth rate to the mid-single digits.
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We expect currency volatility, cost headwinds, and a higher tax rate compared to the previous year to limit the growth rates of the company’s peers, including Colgate-Palmolive (CL), Kimberly-Clark (KMB), and Procter & Gamble (PG).
Clorox stock has underperformed the benchmark index so far this year as its high valuation has limited its upside. Clorox stock is up ~1% YTD as of April 5. In comparison, the S&P 500 is up 15.4%. The shares of Procter & Gamble, Colgate-Palmolive, Kimberly-Clark, and Church & Dwight (CHD) have marked gains of 12.8%, 14.1%, 7.0%, and 10.0%, respectively.