Clorox's Risk-Reward Balances - Analyst Blog
June 23 2011 - 1:38PM
Zacks
We are maintaining a long-term Neutral recommendation on
Clorox Corporation (CLX) with a target price of
$71.00 per share. Moreover, the company has a Zacks #4 Rank,
implying a short-term Sell rating on the stock.
Clorox is one of the world's leading manufacturers of consumer
products. Furthermore, the company possesses a strong portfolio of
brands, including Clorox, Glad, Brita, Armor All, Burt's Bees, STP
and Kingsford, whichoffer a competitive edge to the company and
bolsters its well-established position in the market.
Moreover, Clorox has established financial goals to measure its
progress. These goals include 3% to 5% annual sales growth before
acquisitions, and 75 to 100 basis points of annual improvement in
operating margin.
Additionally, the company has plans to carefully manage the
growth of its asset base. If these financial goals are achieved,
management believes it can realize double-digit economic profit
growth and free cash flow of 10% to 12% of net sales.
Moreover, with the intention of expanding its capabilities in
the areas of health and wellness, Clorox acquired the assets of
Caltech industries in fiscal 2010, which provides disinfectants for
the healthcare industry. With this acquisition, Clorox has become a
provider of bleach disinfectants to more than 2,500 acute care
facilities across the United States. The acquisition has not only
strengthened the company's product offerings, but also its
expertise, R&D and sales capability.
In addition, Clorox is making intensive capital investments in
information technology systems and capabilities, particularly in
the international market, and is providing R&D facilities to
enhance productivity and provide platforms for growth, product
innovation and cost savings. The company believes that these
initiatives will begin delivering benefits later in fiscal 2014 and
beyond.
However, Clorox's unfavorable product mix, increased input and
logistics costs battered the third-quarter 2011 results. The
quarterly earnings of $1.03 per share inched down 3.7% from the
prior-year quarter.
Further, Clorox has a highly leveraged balance sheet with a
long-term debt of $2,125.0 million and a long-term
debt-to-capitalization ratio of 104% at the end of the third
quarter of fiscal 2011. The high debt level adversely affects the
company’s financial flexibility as well as the ability to pursue
acquisitions or expand operations organically.
Above all, the company faces intense competition from other
well-established consumer product companies, both in the U.S. and
in international markets, such as Colgate-Palmolive
Co. (CL) and Procter & Gamble Co.
(PG). Most of the company's products compete with other
widely-advertised brands within each product category and "private
label" brands and "generic" non-branded products of grocery chains
and wholesale cooperatives in certain categories, which typically
are sold at lower prices.
COLGATE PALMOLI (CL): Free Stock Analysis Report
CLOROX CO (CLX): Free Stock Analysis Report
PROCTER & GAMBL (PG): Free Stock Analysis Report
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