Household Goods Stocks

Clorox Company Valuation – January 2017 $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 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  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 is a manufacturer and marketer of consumer and professional products. The Company sells its products primarily through mass retail outlets, e-commerce channels, wholesale distributors and medical supply distributors. The Company operates through four segments: Cleaning, Household, Lifestyle and International. Its Cleaning segment consists of laundry, home care and professional products marketed and sold in the United States. Its Household segment consists of charcoal, cat litter and plastic bags, wraps and container products marketed and sold in the United States. Its Lifestyle segment consists of food products, water-filtration systems and filters, and natural personal care products marketed and sold in the United States. Its International segment consists of products sold outside the United States. It markets some of the consumer brand names, such as namesake bleach and cleaning products, Pine-Sol cleaners, Liquid-Plumr clog removers and Kingsford charcoal.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CLX – January 2017

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 $15,535,313,894 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.93 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 29.10% Fail
6. Moderate PEmg Ratio PEmg < 20 25.15 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 55.11 Fail
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 0.93 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -16.88 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

EPSmg $4.79
MG Growth Estimate 2.33%
MG Value $63.04
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $69.46
MG Value based on 0% Growth $40.72
Market Implied Growth Rate 8.33%
Current Price $120.49
% of Intrinsic Value 191.14%

Clorox Co does not satisfy the requirements of 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 has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $4.15 in 2013 to an estimated $4.79 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.33% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Clorox Co revealed the company was trading above its Graham Number of $16.25. The company pays a dividend of $3.11 per share, for a yield of 2.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 25.15, which was below the industry average of 25.38, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-20.89.

Clorox Co receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$20.89
Graham Number $16.25
PEmg 25.15
Current Ratio 0.93
PB Ratio 55.11
Current Dividend $3.11
Dividend Yield 2.58%
Number of Consecutive Years of Dividend Growth 20

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $1,416,000,000
Total Current Liabilities $1,522,000,000
Long-Term Debt $1,789,000,000
Total Assets $4,466,000,000
Intangible Assets $1,929,000,000
Total Liabilities $4,177,000,000
Shares Outstanding (Diluted Average) 132,193,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.26
Jun2016 $4.92
Jun2015 $4.37
Jun2014 $4.23
Jun2013 $4.30
Jun2012 $4.09
Jun2011 $4.02
Jun2010 $4.24
Jun2009 $3.79
Jun2008 $3.24
Jun2007 $3.26
Jun2006 $2.90
Jun2005 $6.11
Jun2004 $2.56
Jun2003 $2.23
Jun2002 $1.37
Jun2001 $1.35
Jun2000 $1.64
Jun1999 $1.03
Jun1998 $1.43
Jun1997 $1.25

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.79
Jun2016 $4.50
Jun2015 $4.26
Jun2014 $4.19
Jun2013 $4.15
Jun2012 $4.00
Jun2011 $3.88
Jun2010 $3.70
Jun2009 $3.57
Jun2008 $3.51
Jun2007 $3.57
Jun2006 $3.50
Jun2005 $3.44
Jun2004 $2.01
Jun2003 $1.67
Jun2002 $1.38
Jun2001 $1.37

Recommended Reading:

Other ModernGraham posts about the company

Clorox Company Analysis – September 2015 Update $CLX
23 Companies to Research This Week – 9/13/14
Clorox Company Annual Stock Valuation – 2014 $CLX

Other ModernGraham posts about related companies

Select Comfort Corp Valuation – Initial Coverage $SCSS
Leggett & Platt Inc Valuation – August 2016 $LEG
National Presto Industries Inc Valuation – July 2016 $NPK
Leggett & Platt Inc Stock Valuation – February 2016 $LEG
National Presto Industries Valuation – January 2016 Update $NPK
Newell Rubbermaid Inc. Valuation – October 2015 Update $NWL
National Presto Industries Inc. Valuation – October 2015 Update $NPK
Clorox Company Analysis – September 2015 Update $CLX
National Presto Industries Analysis – July 2015 Update $NPK
National Presto Industries Inc. Quarterly Valuation – March 2015 $NPK

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 review our detailed disclaimer.

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