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Is Church & Dwight Stock’s Valuation Restricting Its Upside?

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Jun. 21 2019, Published 2:04 p.m. ET

Stock performance

Shares of Church & Dwight (CHD) are up 16.1% on a YTD (year-to-date) basis as of June 20. The company has continued to impress with its organic sales and earnings growth, supporting its stock. However, CHD has fallen behind most of its peers in terms of returns so far this year.

Shares of Colgate-Palmolive (CL), Procter & Gamble (PG), and Kimberly-Clark (KMB) have risen 23.7%, 21.6%, and 19.6%, respectively, on a YTD basis. Meanwhile, the S&P 500 has risen 17.8% during the same period.

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Unattractive valuation

Church & Dwight’s high valuation and persisting challenges in the Specialty Products segment are restricting the upside in its stock. Church & Dwight stock is trading at 30.8 times its 2019 estimated EPS of $2.48 and 28.3 times its 2020 estimated EPS of $2.70, both of which look unattractive based on the company’s projected EPS growth rates of 9.3% for 2019 and 8.9% for 2020.

Moreover, Church & Dwight stock is trading at a premium of ~29% to the peer average of 23.3x. Its current valuation multiple is also ~18% higher than its four-year average multiple of 25.4x.

In comparison, the shares of Colgate-Palmolive, Procter & Gamble, the Clorox Company (CLX), and Kimberly-Clark are trading at forward PE multiples of 25.4x, 23.9x, 23.9x, and 20.1x, respectively. The current valuations of all these stocks also look unattractive owing to low EPS growth projections in the coming quarters and continued margin pressures.

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