Household Goods Stocks

Clorox Company Analysis – September 2015 Update $CLX

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Clorox Company (CLX) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Clorox Company (Clorox) is a United States-based manufacturer and marketer of consumer and professional products. The Company sells its products through mass retail outlets, e-commerce channels, distributors, and medical supply providers. The Company operates through strategic business units that are aggregated into four reportable segments: Cleaning, which consists of laundry, home care and professional products marketed and sold in the United States; Household, which consists of charcoal, cat litter and plastic bags, wraps and container products; Lifestyle, which includes food products, water-filtration systems and filters and natural personal care products, and International, which consists of products sold outside the United States, such as laundry, home care, water-filtration, charcoal and cat litter products, dressings and sauces, plastic bags, wraps and containers and natural personal care products.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CLX – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CLX value Chart September 2015

EPSmg $4.44
MG Growth Estimate 1.61%
MG Value $52.00
Opinion Overvalued
MG Value based on 3% Growth $64.34
MG Value based on 0% Growth $37.72
Market Implied Growth Rate 8.15%
Current Price $110.03
% of Intrinsic Value 211.59%

Clorox Company does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned with the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $4.01 in 2012 to an estimated $4.44 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.15% annual earnings growth over the next 7-10 years  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Clorox Company (CLX)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CLX Charts September 2015

Net Current Asset Value (NCAV) -$19.85
Graham Number $9.91
PEmg 24.80
Current Ratio 1.02
PB Ratio 122.93
Dividend Yield 2.69%
Number of Consecutive Years of Dividend Growth 20

 

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Useful Links:

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GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $1,429,000,000
Total Current Liabilities $1,405,000,000
Long-Term Debt $1,796,000,000
Total Assets $4,164,000,000
Intangible Assets $1,652,000,000
Total Liabilities $4,046,000,000
Shares Outstanding (Diluted Average) 131,834,000

Earnings Per Share History

Next Fiscal Year Estimate $4.74
Jun15 $4.37
Jun14 $4.23
Jun13 $4.30
Jun12 $4.09
Jun11 $4.02
Jun10 $4.24
Jun09 $3.81
Jun08 $3.24
Jun07 $3.26
Jun06 $2.90
Jun05 $6.11
Jun04 $2.56
Jun03 $2.23
Jun02 $1.37
Jun01 $1.35
Jun00 $1.64
Jun99 $1.03
Jun98 $1.41
Jun97 $1.21
Jun96 $1.07

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.44
Jun15 $4.26
Jun14 $4.19
Jun13 $4.15
Jun12 $4.01
Jun11 $3.88
Jun10 $3.71
Jun09 $3.58
Jun08 $3.51
Jun07 $3.57
Jun06 $3.50
Jun05 $3.44
Jun04 $2.01
Jun03 $1.67
Jun02 $1.38
Jun01 $1.36
Jun00 $1.34

Recommended Reading:

Other ModernGraham posts about the company

23 Companies to Research This Week – 9/13/14
Clorox Company Annual Stock Valuation – 2014 $CLX

Other ModernGraham posts about related companies

National Presto Industries Analysis – July 2015 Update $NPK
National Presto Industries Inc. Quarterly Valuation – March 2015 $NPK
National Presto Industries Inc. Quarterly Valuation – December 2014 $NPK
Leggett & Platt Inc. Annual Valuation – 2014 $LEG
Newell Rubbermaid Inc. Annual Valuation – 2014 $NWL
National Presto Industries Quarterly Stock Valuation – September 2014 $NPK
Leggett & Platt Inc. Quarterly Valuation – September 2014 $LEG
Clorox Company Annual Stock Valuation – 2014 $CLX
National Presto Industries Quarterly Valuation – June 2014 $NPK
Leggett & Platt Inc. Quarterly Valuation – June 2014 $LEG

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to read our full disclaimer.

 

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