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A Pullback In Clorox (NYSE:CLX) Is Your Chance To Buy

Monday, August 3, 2020 | Thomas Hughes
The #1 Pandemic Stock Is …

It’s hard to say, truly, which stock is the very best pandemic play because there have been so many great ones. Companies like Tractor Supply Company (NASDAQ: TSCO), Logitech (NASDAQ: LOGI), and Clorox (NYSE: CLX) have all proven their worth in today’s climate. Shares prices for these stocks have not only rebound from their March lows but they have also marched to new highs, new all-time highs in the cases of the stocks mentioned.

In the case of Clorox, the company is well-positioned as not only the leading maker of household disinfectants but also many other common household brands we all know and love. Among them are KC Masterpiece, Kingsford, Hidden Valley (the ranch people), and Burt’s Bees.

The rush to pantry-loading caused a surge in demand across the company’s product line it is still struggling to catch up with. Earlier this year, Clorox execs let it be known demand for some of its disinfectant products increased 500%. The surge was described as an event no supply chain could handle. A the time, they did not expect to catch up with the surge until mid-summer and, based on my local store shelves, they haven’t yet.

“The Clorox Company reported a 22% sales increase, including double-digit growth across all reportable segments, and a 28% increase in diluted net earnings per share (diluted EPS) for its fourth quarter”

Clorox Revenue Growth Accelerates Into The 2nd Quarter

Clorox just released its fiscal 4th quarter, calendar 2nd quarter results and smashed through consensus. For this company, that’s saying something because consensus for growth was running in the mid-teens and the estimates had been rising. On the top line, Clorox delivered revenue of $1.98 billion or up 21.5% versus the consensus 15%. Organic sales increased 24% versus the 17.1% forecast, and EPS came in well above expectations too. At the GAAP level, EPS of $2.41 beat by $0.40.

To be fair, the strength is not entirely due to COVID-19. The Clorox Company has been executing an aggressive growth strategy they call the Ignite Strategy. The strategy’s focus is to build out the brand portfolio in order to promote and sustain long-term growth. Over the course of the last quarter, Clorox increased its stake in a joint venture supplying cleaning products in the Persian Gulf region.

"Guided by our IGNITE Strategy, we remain committed to building on this momentum through deliberate and aggressive investments to support our ambition of accelerating long-term sales growth."

Looking forward, the company is expecting to post strong results in fiscal 2021 but the comps are going to be tough. The company sustained an 8% revenue growth rate in 2020 that will be tough to beat. The silver lining is that revenue growth accelerated into the end of the fiscal year and show no signs of slowing. The consensus for the upcoming quarters does not yet reflect that strength and likely too low. Ironically, the average analysts’ rating is neutral with a bearish bias.

Clorox Technical Outlook: Profit Taking Is Your Opportunity For Entry

Today’s news, despite its robustness, failed to spark a rally in Clorox shares. Instead, profit takes and short-sellers have the price action down about 2.5% but I don’t think the discount will last. Early action is already showing signs of support above the short-term moving average where I would expect to see a trend-following bounce form. In the near-term, price action may continue to move sideways at or near today’s levels before moving higher.

Don’t forget, Clorox pays a dividend worth 1.88% and comes with a high degree of safety and a higher expectation for future increase. Clorox has been increasing its yield for 43 years, including this one. Longer-term, Clorox brand recognition is growing and that will support growth, profits, and capital returns to shareholders.

A Pullback In Clorox (NYSE:CLX) Is Your Chance To Buy

Companies Mentioned in This Article

CompanyBeat the Market™ RankCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Tractor Supply (TSCO)1.8$137.56-0.4%1.16%23.55Hold$131.73
Logitech International (LOGI)1.1$73.26+3.8%N/A26.16Hold$69.92
Clorox (CLX)2.0$208.53+0.2%2.13%28.37Hold$199.38
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