Clorox Company Annual Stock Valuation – 2014 $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 5 Undervalued Companies for the Enterprising Investor. 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 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 manufacturer and marketer of consumer and professional products. Clorox operates in four segments: Cleaning, Household, Lifestyle and International. Clorox sells its products primarily through merchandisers, grocery stores, other retail outlets, distributors and medical supply providers. Clorox markets some of the brand names, including its namesake bleach and cleaning products, Clorox Healthcare, HealthLink, Aplicare and Dispatch products, Green Works naturally derived home care products, Pine-Sol cleaners, Poett home care products, Fresh Step cat litter, Glad bags, wraps and containers, Kingsford charcoal, Hidden Valley and K C Masterpiece dressings and sauces, Brita water-filtration products, and Burt’s Bees and gud natural personal care products. During the fiscal year ended June 30, 2012 (fiscal 2012), Clorox acquired HealthLink, Aplicare, Inc., and Soy Vay Enterprises, Inc.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â FAIL
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â PASS
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â FAIL
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â FAIL
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â FAIL
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â FAIL
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $89.29 |
| MG Value | $41.30 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $57.27 |
| Value Based on 0% Growth | $33.57 |
| Market Implied Growth Rate | 7.05% |
| Net Current Asset Value (NCAV) | -$21.03 |
| PEmg | 22.61 |
| Current Ratio | 0.85 |
| PB Ratio | 74.68 |
Balance Sheet – 6/30/2014
| Current Assets | $1,395,000,000 |
| Current Liabilities | $1,638,000,000 |
| Total Debt | $1,595,000,000 |
| Total Assets | $4,258,000,000 |
| Intangible Assets | $1,712,000,000 |
| Total Liabilities | $4,104,000,000 |
| Outstanding Shares | 128,800,000 |
Earnings Per Share
| 2014 (estimate) | $4.26 |
| 2013 | $4.31 |
| 2012 | $4.10 |
| 2011 | $2.07 |
| 2010 | $4.26 |
| 2009 | $3.81 |
| 2008 | $3.24 |
| 2007 | $3.23 |
| 2006 | $2.89 |
| 2005 | $2.88 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $3.95 |
| 2013 | $3.77 |
| 2012 | $3.49 |
| 2011 | $3.24 |
| 2010 | $3.71 |
| 2009 | $3.36 |
Dividend History
CLX Dividend data by YCharts
Conclusion:
Clorox Company does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio as well as the high PEmg and PB ratios.  The Enterprising Investor is concerned with the high level of debt relative to the current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.71 in 2010 to an estimated $3.95 for 2014.  This level of demonstrated growth does not support the market’s implied estimate of 7.05% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return 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.
Disclaimer:  The author did not hold a position in Clorox Company (CLX) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
