Shares of Clorox Co. (NYSE: CLX) rose nearly 3% on Monday after the company posted better-than-expected fiscal fourth-quarter financial results. The consumer staples stalwart was a notable gainer on the day’s trading session, considering that the Dow Jones Industrial Average fell 91 points overall.
Clorox’s outperformance continued a longer trend of strong gains for the stock. Shares are up 10% year-to-date and 33% over the past year. Both figures handily beat the broader stock market as measured by the S&P 500 index.
And Clorox is outperforming its closest competitor in the consumer staples sector, Procter & Gamble (NYSE: PG). Here’s why Clorox is doing so well in such a tough environment.
Concentration on Premier Brands
Clorox has a much smaller brand portfolio than bigger companies in its peer group like P&G, but it makes up for this with a laser-like focus on brand leadership. In fact, over 80% of Clorox’s brand portfolio is comprised of products that hold the No. 1 or No. 2 positions in their respective categories.
A few of Clorox’s core brands include its namesake bleach products, Brita, Glad, Kingsford, Burt’s Bees and Hidden Valley.
Strength across its leadership brands allowed Clorox to grow revenue and diluted earnings per share by 4% and 11%, respectively, last quarter. The company’s solid results were driven by 3% volume growth as well as favorable pricing.
Specifically, Clorox’s cleaning segment led the way. This business includes laundry, home care and professional products. Volume here rose 7% last quarter, thanks largely to double-digit sales growth of Clorox disinfecting wipes.
Geographically, the company performed well both in its domestic market as well as in the international market. Its international business grew sales volumes by 2%, and on a currency-neutral basis, sales rose 11%. This was very strong performance, especially in Latin America and Canada, which more than made up for weak results in Europe.
Overall, Clorox’s adjusted earnings per share of $1.44 easily topped analyst expectations of $1.36. Revenue also beat expectations by about $40 million.
Is Clorox Stock an Outright Buy?
Clorox clearly performed better than analysts expected last quarter, which explains why it has performed well over the past year. Whether the stock is a good buy right now, however, is a different question.
Clorox stock, in a way, may be a victim of its own success. It now trades for 27 times trailing earnings, which is a very high multiple for a consumer staples company.
Consider that the company expects sales growth of 0%-1% in the upcoming fiscal year. Earnings are expected to grow 4% at the midpoint of management’s fiscal 2016 outlook. This is steady growth, but may not be enough to justify such a lofty valuation. Going forward, it may be difficult for Clorox to grow at high enough rates to continue convincing investors to pay such a high multiple.
That being said, Clorox does still offer an attractive, and growing, dividend. It currently pays a $3.08 per share annualized dividend, which amounts to a 2.6% yield.
The company raised its dividend by 4% earlier this year, and total dividends paid to shareholders have increased each year since 1977. As a result, while Clorox may disappoint investors if its underlying growth does not keep up with its expanding valuation, investors can still count on it as a premier growth stock.
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