Wednesday, December 17, 2008

* Stock Analysis: Clorox Co. (CLX)

Linked here is a PDF copy of my detailed analysis of Clorox Co. (CLX). Below are some highlights from the above linked analysis:

Company Description: The Clorox Company is a manufacturer and marketer of consumer products. The Company markets brand names, including Clorox bleach, Armor All, STP, Fresh Step/Scoop Away, Kingsford, Hidden Valley, KC Masterpiece, Brita , Glad, etc.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number
CLX is trading at a discount to 1.) and 3.) above. Since CLX's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, CLX is trading at a slight premium. CLX earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
  1. Rolling 4-yr Div. > 15%
  2. Dividend Growth Rate
  3. Years of Div. Growth
  4. 1-Yr. > 5-Yr Growth
  5. Payout 15% of avg.
CLX earned two Stars in this section for 3.) and 4.) above. CLX has paid a cash dividend to shareholders every year since 1968 and has increased its dividend payments for 31 consecutive years. It's one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
  1. NPV MMA Diff.
  2. Years to >MMA
CLX earned one Star in this section for 1.) above. The NPV MMA Diff. of the $4,183 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as CLX has. If CLX grows its dividend at 8.5% per year, it will take 7 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%.

Other: CLX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. CLX has stable demand for its household and personal care products, which is generally not affected by changes in the economy. The company has demonstrated a good level of product innovation, which in turn strengthens the company's pricing power and competitive stance. Risks include increased competition and promotional
activity, poor acceptance of new products, unfavorable foreign exchange and challenges associated with implementing an ERP system.

Conclusion: CLX earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks CLX as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price could increase to $53.62 before CLX's NPV MMA Differential to hit the $3,000 that I like to see. At that price the stock would yield 3.21%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 7.6%. This dividend growth rate is below the 8.5% used in this analysis.

CLX is a stock that has been on my watch list for quite some time. With last week's decline, I was finally able to initiate a position in CLX below my $52.69 Buy Below price. For additional information, including PAYX’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in CLX (1.4% of my Income Portfolio) .

What are your thoughts on CLX?

Tags: [CLX]