Clorox Sales Up 22% in June Quarter Amid COVID-19 Panic-Buying; Target Price $256

Clorox, a $9 billion market cap consumer products company, reported that its sales surged 22% in the June quarter, including double-digit growth across all reportable segments as people spent more time cleaning and disinfecting their homes due to the COVID-19 pandemic, sending its shares up over 1% pre-market trading.

Clorox said it delivered earnings of $310 million, or $2.41 diluted EPS in the fourth quarter, which ended June 30, 2020, compared to $241 million, or $1.88 diluted EPS, the same quarter a year earlier, representing a 28% increase in diluted earnings per share. The company’s fourth-quarter gross margin increased 170 basis points to 46.8% from 45.1% in the year-ago quarter.

The board of directors of the Clorox Company also announced that, effective Sept. 14, 2020, Linda Rendle will be promoted to chief executive officer and elected to the company’s board of directors. Benno Dorer will continue serving as the board’s executive chair.

Clorox shares closed 2.27% higher at $236.51 on Friday, increased more than 50% since the beginning of 2020.

Clorox stock forecast

Nine analysts forecast the average price in 12 months at $202.89 with a high forecast of $256.00 and a low forecast of $164.00. The average price target represents a -14.22% decrease from the last price of $236.51. From those nine, three analysts rated ‘Buy’, four analysts rated ‘Hold’ and three rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $193 with a high of $259 under a bull scenario and $145 under the worst-case scenario. Deutsche Bank raised its target price to $223 from $174. Several other equity analysts have also updated their stock outlook. Clorox had its price target raised by investment analysts at JPMorgan Chase & Co. to $235 from $203. BofA Global Research raised price objective to $235 from $215.

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 comment

“Structural Long-term Topline Challenges Relative to HPC Peers: While CLX’s near-term topline is likely to be robustly supported by a COVID-related demand boost for cleaning products (we project +17.5% for 2H20e, 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 20.5x CY21e EV/EBITDA and 30x CY21e P/E as too high (in comparison to PG at 23x CY21e P/E) considering limited LT EPS growth and strategic potential relative to peers post a beneficial COVID impact,” he added.

Upside and Downside Risks

Topline and margin upside from improved pricing, longer-lasting COVID-related demand impact, better than expected volume, declining commodity costs, successful innovation driving recaptured shelf space, consolidation potential, and cost-cutting, Morgan Stanley highlighted as upside risks to Clorox.

Pricing doesn’t take hold, worsening volumes, higher than expected commodity inflation, heightened competition from private label, Morgan Stanley highlighted as downside risks.