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Church & Dwight Hits 52-Week High: Is There More Room to Run?

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Church & Dwight Co., Inc. (CHD - Free Report) has been gaining from its international consumer sales unit that has been performing well for quite some time. Also, strategic acquisitions have been contributing to the company’s top line. These factors along with focus on innovations and continued organic sales growth seem to be boosting investors’ confidence.

Markedly, Church & Dwight has gained 9.6% in the past three months, against the industry’s decline of 1.6%. In fact, this Zacks Rank #3 (Hold) stock scaled a 52-week high of $55.05 on Jul 13, though it closed a tad lower at $54.9.

What’s Behind the Rally?

Church & Dwight has been consistently gaining from strength at its International Consumer unit. In first-quarter 2018, organic sales in the international segment jumped 6.8%, driven by higher volumes, and improved pricing and mix.

The company’s overall international sales surged 26.3%, receiving considerable impetus from OXICLEAN in the export business; STERIMAR, ARM & HAMMER toothpaste and OXICLEAN in Mexico; and FEMFRESH and BATISTE in Australia. Additionally, the company is opening new offices in order to support increase in export business and expects this business to remain strong. Also, it is making considerable investments in Southeast Asia and China, which are likely to be major growth drivers in the future.

Also, Church & Dwight has been witnessing organic sales growth for quite some time now, backed by its solid focus on product innovations. Evidently, organic sales grew 3.8% in the first quarter of 2018 following increases of 2.3%, 1.8%, 3.2% and 3.4% in first, second, third and fourth-quarter 2017, respectively. In the first quarter of 2018, organic sales growth was driven by a 4.2% rise in global consumer products’ growth, which, in turn, was fueled by higher volumes. In 2018, management expects organic sales to grow more than 3%.

Furthermore, the company is actively pursuing strategic acquisitions that has been boosting its revenues, which are expected to reach $4 billion in 2018. In this regard, Church & Dwight recently acquired Waterpik, which contributed significantly to its sales in the first quarter. Management expects sales from Waterpik to increase in high single digits in 2018. The company's other acquisitions include Agro BioSciences in May and VIVISCAL business in January 2017. Prior to that, the acquisitions of ANUSOL and RECTINOL brands from Johnson & Johnson in December 2016 helped Church & Dwight boost its business internationally.

Bottom Line

Though these upsides raise optimism for the stock, the company’s gross margin looks somewhat under pressure and is expected to decline 80 bps year over year in 2018. High commodity and transportation expenses, and unfavorable brand mix remain threats to margins.

Nevertheless, we expect the company’s aforementioned upsides to offset these hurdles and help it continue with its stellar show.

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