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Is Clorox (CLX) Stock Still a Great Buy for the Eventual Coronavirus Recovery?

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Shares of the Clorox Company (CLX - Free Report) have surged over 35% in 2020, against the S&P 500’s 12% decline, as investors dive into stocks that are immune to the coronavirus economic downturn. And Clorox, which sells disinfectant products that kill germs at home and in healthcare settings, hasn’t just stayed above the fray, its sales have boomed.

Clorox topped our quarterly earnings and revenue estimates on May 1, and the stock has jumped 12% since the end of April. Some investors might think the rally is overdone, especially for a coronavirus play. But is Clorox still a great buy even near its new highs?

First Coronavirus Quarter

Clorox disinfectant wipes are flying off the shelves during the global pandemic, and they remain hard to find these days as the company fights to ramp up production to meet insanely high demand. “We’re shipping canisters of wipes every day to our customers, and within 30-45 minutes they’re gone from shelves,” Clorox CFO Kevin Jacobsen said in a recent Wall Street Journal interview. “Demand has outstripped what anybody could have imagined.”

The company has reportedly increased production of disinfectant products by 40%. But CLX still can’t keep up, with U.S. disinfectant wipe sales up roughly 150% for the eight-week period ended March 25, according to Nielsen data. Clorox’s finance chief said it will likely take until summer for the firm to catch up.

Clorox’s Q3 fiscal 2020 sales jumped 15% overall for the period ended on March 31, with its cleaning unit up 32%. This expansion was driven by sales of its Clorox disinfecting wipes, sprays, bleach, and more, as consumers, businesses, healthcare professionals and more aim to clean surfaces as much as possible.

Meanwhile, Clorox’s adjusted quarterly earnings surged over 31% to crush our Zacks estimate and hit $1.89 a share. “Beyond the extraordinary growth in our disinfecting products, we saw broad-based growth across all four segments as our portfolio is uniquely positioned to serve consumers in this unprecedented time,” CEO Benno Dorer said in prepared remarks.

“Importantly, our business was on track to deliver growth for the back half of the year in line with our expectations, even ahead of the pandemic.”

 

 

 

 

 

 

 

 

 

Not Just Bleach

Clorox stock has outperformed the market and its peers, which includes the likes of Unilever NV (UN - Free Report) , Procter & Gamble (PG - Free Report) , Colgate-Palmolive (CL - Free Report) , in 2020 because its disinfectant offerings appear strong as overall retail sales plummet—aside from giants such as Amazon (AMZN - Free Report) , Target (TGT - Free Report) , Walmart (WMT - Free Report) , and a few others. But CLX’s portfolio extends far beyond its namesake disinfectant products

The company’s portfolio includes everything from Kingsford charcoal and Brita water filters to Hidden Valley Ranch and Burt's Bees. Better still, over 80% of Clorox’s sales are “generated from brands that hold the No. 1 or No. 2 market share positions in their categories.

Last quarter, its lifestyle unit that includes food, water filtration, and more saw its sales jump 10%. Plus, its international space climbed 11% and its household division popped 2%.

Outlook

Moving on, our current Zacks estimates call for Clorox’s fourth quarter fiscal 2020 revenue to jump 14%. This would nearly match Q3’s 15% top line expansion and once again blow away all of its recent quarterly results for well over a decade.

Overall, Clorox’s full-year fiscal 2020 revenue is projected to jump 5.8% to reach $6.57 billion. This would represent its strongest annual revenue growth since 2008. Peeking further ahead, CLX’s Q1 fiscal 2021 revenue is projected to climb 6%.

At the bottom end of the income statement, Clorox’s adjusted Q4 earnings are projected to pop 5% to reach $1.97 a share, with its full-year EPS figure expected to jump over 9%.

On top of that, Clorox’s earnings revision activity has turned completely positive since it reported its results on May 1. This is no easy task in the current pandemic environment, where overall S&P 500 earnings are projected to tumble 23% in 2020 (also read: Previewing the Retail Sector's First Coronavirus Earnings Season).

 

 

 

 

 

 

 

 

Bottom Line

Clorox’s positive earnings revisions help it earn a Zacks Rank #1 (Strong Buy) right now. CLX also sports a “B” grade for Growth in our Style Scores system and is part of an industry that rests in the top 5% of our more than 250 Zacks industries. The company’s valuation is a bit stretched, trading at new highs of 3.9X forward 12-month sales estimates, which is above its one-year median of 3.1X.

Some might still want to scoop up CLX now because it has continued to hit new highs. Plus, Clorox’s 2.02% dividend yield is solid and hardly artificially inflated. That said, there could clearly be a pullback in the near-term, but it’s hard to know when given that Wall Street is still clamoring for these safe-haven stocks.

And in the end, Clorox and its broad portfolio of consumer staples appears to be a strong longer-term buy.

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