Free cash flow has also been used by management to initiate share repurchases. Share repurchases reduce the amount of shares outstanding, which boosts earnings per share and makes the remaining shares more valuable. In the fourth quarter, Clorox repurchased about 1.5 million shares for approximately $128 million. Management says its number one priority is creating stockholder value, and their actions confirm this to be the truth.
Competitive industry
The household products industry provides plenty of competition for Clorox. The Procter & Gamble Company (NYSE:PG) and Kimberly Clark Corp (NYSE:KMB) are two of the largest companies in the world. The Procter & Gamble Company (NYSE:PG) is most known for its brands such as Tide, Duracell, Vicks, Mr. Clean, Pampers, and Febreze. Kimberly Clark Corp (NYSE:KMB)’s brand portfolio includes Kleenex, Cottonelle, Huggies, Scott, and Kotex. All of these include products we currently use or have used in the past, much like Clorox’s line.
| Company | Clorox | Proctor & Gamble | Kimberly-Clark |
| Market Cap | $11.1 billion | $219 billion | $36.8 billion |
| P/E | 19.5 | 20.7 | 20.4 |
| Forward P/E | 17.1 | 17.1 | 15.85 |
| Dividend Yield | 3.4% | 3% | 3.4% |
| YTD Performance | +13.2% | +15% | +10.7% |
(Source: Yahoo! Finance)
All three of the companies in focus have incredible brand strength and market share. In the analysis, Clorox is shown to be trading at the cheapest valuation today, but all have favorable growth going forward and have performed well year-to-date. Through innovation, they each have the ability to continue to grow for decades and would make for good investments. However, Clorox’s low market cap gives it a much higher potential to double or become the next big takeover target. For years, Clorox has been said to be the perfect fit for Warren Buffett’s Berkshire Hathaway portfolio, and I could not agree more. Buying a stock based on the possibility for a takeover is not always a smart move, but when it comes to a fundamentally strong company that will do well regardless, it is very smart.
The bottom line
Clorox is one of the most undervalued companies in the market today. It is expected grow consistently over the next several years, and its healthy 3.4% dividend will provide additional returns. Keep an eye on this one and take a look to see if it would fit your investment strategy.
The article An Undervalued Industry Giant originally appeared on Fool.com and is written by Joseph Solitro.
Joseph Solitro has a long position in Clorox. The Motley Fool recommends Kimberly-Clark and Procter & Gamble (NYSE:PG).
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