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Bullish on Clorox

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We believe that California-based The Clorox Company (CLX - Free Report) , through its plans for further acquisitions and willingness to grab alliance opportunities, will boost its market share and product portfolio. Moreover, the company recently posted better-than-expected fourth-quarter 2012 results. Driven by these factors, we have upgraded our long-term recommendation on the stock to ‘Outperform’ from ‘Neutral’.

In the recently reported quarter, Clorox posted earnings of $1.36 per share, ahead of the Zacks Consensus Estimate of $1.27, and up 5.4% from the prior-year period’s earnings. Sales for the quarter grew 4% year over year to $1,541 million and also surpassed the Zacks Consensus Estimate of $1,534 million.

The encouraging results were driven by benefits from cost-saving initiatives, higher volumes, price increases, lower advertising costs and tax rate. Additionally, contributions from new businesses, which were acquired earlier in the year, drove sales higher. Strong results as well as innovations across its brands prompted management to guide fiscal 2013 sales growth in the range of 2% - 4% and earnings per share between $4.20 and $4.35.

Clorox is one of the world's leading manufacturers of consumer products. Furthermore, the company possesses a strong portfolio of brands, including Clorox, Glad, Brita, Armor All, Burt’s Bees, STP and Kingsford, which offer a competitive edge to the company and bolster its well-established position in the market.

Clorox has expanded its capabilities in the areas of health and wellness by acquiring Aplicare Inc. and HealthLink, providers of infection control products in the healthcare industry. The company sees ample growth potential in the use of infection control products. We believe that the acquisition has not only strengthened its product offerings, but also its expertise, R&D and sales capabilities.

Clorox is making intensive capital investments in information technology systems and capabilities, particularly in the international market, and R&D facilities to boost productivity while providing platforms for growth, product innovation and cost savings. The company believes that these initiatives will begin delivering benefits later in fiscal 2014 and beyond.

Based on the above analysis and its strong fundamental outlook, we expect Clorox to continue accelerating revenue and earnings growth over the next few quarters. Our new long-term ‘Outperform’ recommendation is supported by a Zacks #2 Rank (short-term Buy rating).

Clorox competes with Colgate-Palmolive Company (CL - Free Report) and Procter and Gamble Company (PG - Free Report) .

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