Clorox Shares Jump About 6% After Strong Earnings; Target Price $256

Clorox reported its net sales surged 27% in the first quarter of FY2021, the strongest in more than two decades, including double-digit growth across all major business units as people spent more time cleaning and disinfecting their homes due to the COVID-19 pandemic, sending its shares up about 6% on Monday.

The $9 billion market cap consumer products company delivered $3.22 diluted EPS, compared to $1.59 diluted EPS in the year-ago quarter, representing a 103% increase. That was also higher than the market expectations of $2.32 per share. Net sales registered 27% to $1.92 billion – the biggest quarterly jump since 1998.

Diluted EPS results reflect higher sales, gross margin expansion and a one-time non-cash gain from the remeasurement of the company’s previously held investment in its Saudi joint venture. Excluding the impact of the acquisition, EPS grew 66%.

Clorox forecasts full-year sales to grow between 5% to 9% and earnings per share to grow between 5% and 8% to $7.70 to $7.95 per share.

At the time of writing, Clorox shares traded 5.61% higher at $219.0 on Monday; the stock is up over 50% so far this year.

Executive Comments

“We delivered another quarter of outstanding results to have a strong start to the fiscal year, with broad-based strength across our portfolio, driving double-digit sales growth in all reportable segments,” said CEO Linda Rendle.

“Our priority remains maximizing the supply of our products — leveraging all available resources to help ensure people can access what they need — and continuing to play 100% offense on all our businesses, with a focus on delivering value and innovation that allows us to convert new users to loyal consumers,” Rendle added.

Clorox Stock Price Forecast

Eight equity analysts forecast the average price in 12 months at $222.63 with a high forecast of $263.00 and a low forecast of $189.00. The average price target represents a 2.12% increase from the last price of $218.00. From those eight analysts, one rated “Buy”, five rated “Hold” and two rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $197 with a high of $261 under a bull-case scenario and $146 under the worst-case scenario. The firm currently has an “Underweight” rating on the consumer products company’s stock. Citigroup boosted their price objective on Clorox to $246 from $206 and gave the stock a “neutral” rating in August.

Several other analysts have also recently commented on the stock. JP Morgan lowered Clorox from an “overweight” rating to a “neutral” rating and set a $235 price target for the company. The investment bank said the move was a valuation call. Deutsche Bank boosted their price target to $223 from $174 and gave the stock a “hold” rating in July. At last, Zacks Investment Research lowered to a “hold” rating from a “buy” and set a $249 price target.

We think it is good to buy at the current level with a target of $256 as 100-day Moving Average and 100-200-day MACD Oscillator signal a mild buying opportunity.

Analyst Comments

“Structural Long-term Topline Challenges Relative to HPC Peers: While Clorox’s (CLX) near-term topline is likely to be robustly supported by a COVID-related demand boost for cleaning products (FY20 organic growth of 10%, driven by the 25% of CLX’s business related to cleaning), we believe that longer-term, Clorox remains over-indexed to low-growth product categories, with high exposure to the US,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“Valuation Too High: We view CLX valuation of ~20.3x CY21e EV/EBITDA and ~31x CY21e P/E as too high (in comparison to PG at ~23.5x CY21e P/E) considering limited LT EPS growth and strategic potential relative to peers post a beneficial COVID impact,” Mohsenian added.

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