Company Profile (excerpt from Reuters): The Clorox Company, incorporated on September 5, 1986, 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. The Company markets some of the consumer brand names, including namesake bleach and cleaning products, Pine-Sol cleaners, Liquid-Plumr clog removers, Poett home care products, Fresh Step cat litter, Glad bags, wraps and containers, Kingsford charcoal, Hidden Valley dressings and sauces, Brita water-filtration products and Burt’s Bees natural personal care products. The Company also markets brands for professional services, including Clorox Healthcare and Clorox Commercial Solutions. The Company manufactures products in approximately 10 countries and markets them in over 100 countries.
Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$20,224,279,591||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||1.15||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||44.05%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||27.45||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||27.67||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||1.15||Fail|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||12.77||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
|MG Growth Estimate||5.25%|
|MG Value based on 3% Growth||$83.37|
|MG Value based on 0% Growth||$48.87|
|Market Implied Growth Rate||9.47%|
|% of Intrinsic Value||144.40%|
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, 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 $4.26 in 2015 to an estimated $5.75 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.47% 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 $28.13. The company pays a dividend of $3.48 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 27.45, which was above the industry average of 26.43. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-22.8.
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)||-$22.80|
|Number of Consecutive Years of Dividend Growth||20|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||12/1/2018|
|Total Current Assets||$1,365,000,000|
|Total Current Liabilities||$1,186,000,000|
|Shares Outstanding (Diluted Average)||130,094,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$6.20|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$5.75|
Other ModernGraham posts about the company
|Clorox Co Valuation – May 2018 $CLX|
|Clorox Company Valuation – January 2017 $CLX|
|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
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.