Dividend Aristocrats are companies that have consistently increased their dividend payouts for at least 25 consecutive years, showcasing their ability to generate stable cash flows over time. Despite their reputation for reliability, one Dividend Aristocrat, Clorox (NYSE:CLX), has been trailing the broader markets significantly and currently offers a dividend yield of 3.79%.
Over the past two decades, Clorox stock has returned 364% to shareholders after accounting for dividends. In comparison, the S&P 500 Index has returned just over 500% during the same period. However, in 2023, CLX has underperformed the market, declining 5% year-to-date while the S&P has gained more than 13%.
With the stock down 40% from its all-time highs, the question arises: Is Clorox a good buy right now?
Clorox’s Performance in Q1 of Fiscal 2024
Clorox is one of the largest cleaning product companies globally, with a market capitalization of $15.56 billion. The company’s shares saw a significant drop in value following a cyberattack in August that threatened to disrupt its production and supply chain.
In fiscal Q1 of 2023 (ended in September), Clorox reported a 20% year-over-year decline in sales, while adjusted earnings fell by 75%. Despite these steep declines, Clorox managed to beat consensus estimates for Q1.
One factor contributing to Clorox’s underperformance in the past year is lower profit margins following the COVID-19 pandemic. Initially, Clorox experienced a surge in demand for its cleaning products, which led to additional manufacturing costs as it had to hire contract manufacturers to keep up with demand. When demand cooled off in 2022, an inflationary environment further eroded the company’s profit margins. However, Clorox ended fiscal Q1 with gross margins of 39.4%.
Analysts Expectations for Clorox Stock
After the Q1 results, Citi analyst Filippo Falorni upgraded Clorox stock to “buy” from “neutral” and raised the price target for CLX from $135 to $150. Falorni explained that Clorox is working with retail partners to build inventory and shelf space, which should help grow its top line in the next 12 months. He also expects Clorox to recover from the cyberattack by the end of fiscal 2025.
However, not all analysts share this optimism. Deutsche Bank analyst Stephen Powers, for instance, maintained a “hold” rating on Clorox with a price target of $136. He cited concerns such as slowing demand, cost inflation, increased competition, and an uncertain macroeconomic environment as potential headwinds for the company.
Out of the 15 analysts covering Clorox stock, only one recommends “strong buy,” eight recommend “hold,” one recommends “moderate sell,” and five recommend “strong sell.” The average target price for CLX is $136.85, suggesting an expected upside potential of less than 7% from current levels.
Although CLX is not considered cheap, priced at 27.4 times forward earnings, it is forecasted to see long-term earnings growth of 10.5% annually, which exceeds the median for consumer staples stocks. Additionally, robust projections for operating cash flow growth suggest that the company could continue to raise its dividend. Clorox has already increased its dividend for more than 40 consecutive years, putting it on track for Dividend King status.
Featured Image: Unsplash @ Clay Banks
Author Faith Yakubu 
