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Is Clorox Company (NYSE:CL) A Good Investment?

SOROS FUND MANAGEMENTThe Clorox Company (NYSE:CLX)’s products range from its well-known bleach to Glad trash bags, Brita water filters, and Kingsford charcoal. This portfolio of household goods generates a beta relative to the broader market of 0.4, and roughly in line with this statistical trend the company’s 7% gain this year underperforms the S&P 500’s 12-13% rise. 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 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. Comparing the company’s last quarter to the fourth quarter of its last fiscal year, revenue was up 4%, earnings were up 3%, and earnings per share were up 5%. This represented the sixth consecutive quarter in which revenue grew on a q/q basis. The company also announced target earnings per share of $4.20 to $4.35 per share for the current fiscal year. 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.

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