George Soros Got Bullish About This Consumer Stock
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The Clorox Company (NYSE: CLX)’s products range from its well-known bleach to Glad trash bags, Brita water filters, and Kingsford charcoal. This household goods company has a beta of 0.4 in relation to the broader market; with the S&P 500’s 12-13% rise this year, the company’s 7% gain roughly fits that statistical trend, causing it to underperform the market. Of course, the corresponding plus for the stock is that it is resistant to downturns, currently trading about 18% above its price from five years ago while the S&P nears a total return of zero.
Clorox’s fiscal year ended on June 30th, with the company reporting sales growth of 5% compared to the previous fiscal year and earnings which were about flat (earnings per share grew by 2% due to a decrease in share count). The Clorox Company saw revenue growth in all four of its segments- cleaning, household, lifestyle, and international operations- as well as growth in operating income. However, surging corporate-related expenses caused net income to underperform operating income. The company’s fourth fiscal quarter was the sixth consecutive quarter in which revenue had been higher than in the last report, suggesting stability in Clorox’s business even as the financial community has worried about low consumer spending.
The company also announced target earnings per share of $4.20 to $4.35 per share for the current fiscal year ending next June. Taking $4.25 as the projected earnings per share for the next year- a bit on the conservative side of the internally forecasted range- the stock price as of this writing of $72.16 represents a current year P/E multiple of 17, compared to a trailing P/E of 18. For a stable, slow-growing consumer staples business with little macro exposure and a dividend yield of 3.6% at current prices, that seems about right and possibly a bit low compared to some other consumer companies.
George Soros thought that The Clorox Company was a buy during the second quarter of 2012. Soros Fund Management initiated a position of about 680,000 shares, which according to our database of 13F filings made it the largest hedge fund holder of the stock (see more stocks that George Soros likes). Israel Englander’s Millennium Management and billionaire Jim Simons’ Renaissance Technologies reduced their stakes in Clorox in the second quarter but still owned about 160,000 and 150,000 shares, respectively, at the end of June.
Clorox’s peers in the housewares industry include Newell Rubbermaid (NYSE: NWL), Jarden (NYSE: JAH), and Helen of Troy (NASDAQ: HELE), though all three are smaller and more exposed to the broader economy. Newell Rubbermaid’s product mix includes Rubbermaid and Sharpie, and the company trades at 10 times forward earnings estimates; however, in its most recent quarterly report Newell Rubbermaid reported a 24% decrease in earnings compared to the same period the previous year.
Jarden also trades at a forward P/E of 10 and has achieved earnings growth in recent quarters, as well as beating sell-side estimates in its last four reports. Jarden’s products include camping equipment and appliances. From a value perspective we can see it as a superior investment to Clorox.
Helen of Troy is even lower priced, at only 8 times forward earnings estimates and a five-year PEG of 0.8. We would expect that its personal products are particularly more brand-dependent and discretionary than Clorox’s various offerings, but the pricing is low enough for us to overlook that. The company can also be compared to Colgate-Palmolive (NYSE: CL), a larger company whose best-known products are toothpaste and dish soap. The forward P/E at Colgate-Palmolive is 18, barely above Clorox’s, and the dividend yield is lower at 2.4%. We think that Clorox is a better buy than Colgate-Palmolive, but if investors are willing to take on a bit more macro risk they should look more closely at the smaller housewares companies.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of The Clorox Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.