The Clorox Co (CLX), The Procter & Gamble Company (PG): An Undervalued Industry Giant

The search for undervalued companies has yielded many results after the recent downturn in the market. However, none stick out more than The Clorox Co (NYSE:CLX). This international titan has fallen over 6.5% from its 52-week high, and is poised for a large run from its current level.

The company

The Clorox Co (NYSE:CLX) is a worldwide leader in the manufacturing and marketing of consumer products. It is home to some of the most popular brands that many consumers use every single day. In fact, 90% of The Clorox Co (NYSE:CLX)’s brands hold the number one or number two ranking in its market:

Fourth quarter results

On Aug. 1, The Clorox Co (NYSE:CLX) released its fourth quarter report for fiscal 2013. The results were mixed, but positive overall.

• Earnings per share of $1.38 vs. expectations of $1.34
• Revenues of $1.5 billion vs. expectations of $1.6 billion

Fiscal 2013 results

Financial results for fiscal 2013 were in-line with analyst expectations. The most notable statistic in the report is the increase in gross margin. By making more profit on its products, The Clorox Co (NYSE:CLX)’s volume could remain flat and still see its revenue rise. Gross margin could easily surpass the 43.5% mark for fiscal 2014.

Outlook

In the fourth quarter report, Clorox confirmed its outlook for fiscal 2014. The expectations currently call for:

• 2%-4% sales growth
• Earnings per share of $4.55 to $4.70
• Increased cost savings
• Lower selling and administrative costs

Free cash flow 

Clorox reported $583 million in free cash flow for 2013, a 36% increase from 2012. This free cash flow is often used to increase distributions to shareholders, as it has raised its dividend every year since 1977. There is no reason for this streak to end anytime soon.