What Analysts Say about Clorox

In a previous post I mentioned that I've been eyeing the consumer products company Clorox (CLX). I meant to include a link to the company's brands since that's a large part of the attraction--please find it here.

I wanted to share a few (edited) excerpts from analyst reports on the company, showing points for and against investing. Much of the discussion has to do with Clorox being priced below the multiples it historically has received, yet facing the major headwind of higher commodity costs. CLX is trading just under $56.

Merrill Lynch (Ferrara, Tong: May 2, 2008) We continue to believe that CLX needs to move through $60 just begin flirting with even the very low-end of a reasonable valuation range (implies 15x CY09 ests, vs the peer group at 15-16x). So we still see room, especially for a company with better than average top line momentum and a demonstrated ability to pass commodity costs on to consumers. We reiterate our Buy rating.

Wachovia (Gere, Shively: May 2, 2008) CLX's recent P/E multiple (16x CY2008 estimated EPS from operations of $3.64) may appear attractive versus historical levels (17.5-22.5x EPS). With a return to 10% EPS growth not evident until 2H09, potential upside in the stock may be limited for the time being. New focus on economic profit and cost cutting efforts should pave the way for low double digit EPS growth longer term. While we think organic volume growth can improve near-term, our Market Perform rating reflects near term concerns over cost inflation, which could keep such EPS growth away for a while.

Citigroup (Nicholson, Azer: May 1, 2008) Over the last decade, CLX's stock has traded at an average 11% premium to the S&P 500, ranging from a 37% discount to a 53% premium. Given our concerns about the still-challenging raw materials environment to which CLX is highly exposed, along with our belief that earnings growth will continue to be lumpy, we believe this stock deserves to trade at a 10% discount to the market multiple. We derive a $55 target price on CLX's shares.

Oppenheimer (Altobello, Capellan: May 1, 2008) We are maintaining our Underperform rating, as we remain skeptical not only of the company's ability to expand margins in the current environment, but also of the impact that price increases will have on category growth (which is slowing) and consumer trade-down (which we have not seen).

BMO Capital Markets (Maneaty: May 4, 2008) We're maintaining our price target of $72 based on a P/E of 17.2x on our CY2009 operating estimate of $4.18 (up 17%). This valuation assumes that Clorox trades at a 5% premium to the market, less than its 3-, 5-, and 10-year premiums to the market of 24%, 23%, and 12%, respectively. At 17.2x, Clorox would also be trading near its 15-year low forward P/E multiple of 13.2x.

Disclosure: Author does not own shares in CLX.