Morningstar

Wide-Moat Clorox Cleans Up in Second Quarter

Clorox bucked the headwinds of intense competition and slowing global growth with its quarterly results.

Securities In This Article
Clorox Co
(CLX)

Management took down the top end of its fiscal 2017 adjusted earnings range to $5.23-$5.38 per share from $5.23-$5.43 previously to reflect a slightly lower benefit from accounting for share-based compensation. But we don’t anticipate changing our estimate of $5.27 per share, which still falls in the company’s updated range. In addition, our long-term outlook (around 4% annual sales growth--with about 60% of the growth driven by higher volume, with the remainder resulting from increased prices and favorable mix--and operating margins expanding to just north of 19%, 150 basis points above the five-year average) remains in place.

We’re maintaining our $119 fair value estimate, excluding the benefit from the time value of money. With the mid-single-digit uptick in the shares, though, we view the stock as a bit elevated, trading at a 6% premium to our valuation. As such, we’d suggest investors await a more attractive entry point before building a position. For investors looking to garner a foothold in the space, we’d suggest wide-moat Colgate (which is trading at more than a 10% discount to our $74 fair value estimate) as a more attractive option.

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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