At the end of June, several independent directors of Church & Dwight Co., Inc. (NYSE:CHD) purchased more than 7,700 shares of the company at around $61.70 per share with the total transaction worth more than $476,000. Since the beginning of the year, Church & Dwight has gained nearly 15.3% on the market, a bit higher than the S&P 500’s return of 14.4%. Should investors follow those independent directors into Church & Dwight now? Let’s find out.
Church & Dwight Co., Inc. (NYSE:CHD) has a long operating history, dated back to 1846, manufacturing a wide range of household, personal care and specialty products under eight “power brands” including Arm & Hammer, Trojan condoms, OxiClean stain removers and Xtra laundry detergent. The company operates in three main business segments: Consumer Domestic, Consumer International and Specialty Chemical Products, or SPD.
Most of its operating income, $428.8 million, or 79% of the total profit, was generated from the Consumer Domestic segment, while the Consumer International and the SPD segment contributed only $71 million and $33.8 million, respectively, in operating income. The company had quite a concentrated customer base, with three customers accounting for 34% of the total sales in 2012. Wal-Mart is its largest customer, representing as much as 24% of its total 2012 revenue.
The cash cow with consistent growth and conservative capital structure
What I really like about the company is its consistent growth in both top line and bottom line. Its revenue has increased from more than $1 billion in 2003 to more than $2.9 billion in 2012, while the net income rose from $81 million to $350 million during the same period.
The dividend has also followed the same rising trend, climbing from $0.10 per share to $0.96 per share in the past ten years. Church & Dwight Co., Inc. (NYSE:CHD) is also considered to have great cash flow generating capabilities, with growing free cash flow. In 2012, the operating cash flow was $524 million and the free cash flow came in at $449 million.
Investors might find safety in investing in the company for the long-run, as it employed quite conservative capital structure. As of March 2013, it had $279 million in cash and short-term investments, more than $2 billion in equity, and only $853 million in both long and short-term debt. It also booked $466 million in deferred tax liabilities, which could be considered an interest-free loan from the government.
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However, the market seems to value the company quite expensively. At $61.70 per share, Church & Dwight Co., Inc. (NYSE:CHD)is worth $8.5 billion on the market. The market values the company at as much as 19.85 times its forward earnings.