Clorox (NYSE:CLX) was a stock destined to excel during a worldwide pandemic. As the maker of name-brand household cleaning and sanitizing products, the company saw consumer demand surge for bleach, wipes, and other necessary items to keep germs at bay. As a result, Clorox has had a stellar year as profits even doubled in the fiscal 2021 first quarter.
Yet the COVID-19 outbreak won't go on forever, and life is already returning to normal as many states do away with mask mandates and restrictions on businesses. That means investors need to consider what the prospects for a post-pandemic Clorox are and whether its stock is a buy.
Now we're cooking
Even with latent demand for sanitizing products stretching out across 2021, comparables this year are going to be tough. Yet because last year was such an outlier, investors would do well to pretty much ignore it and instead consider what Clorox business will be like when stacked up again a more normal period.
For that, there's substantial reason to be hopeful. Although best known for its bleach and cleaning supplies, Clorox has a much more extensive product portfolio than many realize. Kingsford charcoal, for example, is a Clorox product whose market share far outstrips any other brand on the market.
During the pandemic, with more people staying at home, barbecues became part of the daily routine, and sales grew at double-digit rates. Importantly, Kingsford didn't have to use price promotions to to spur the increased demand.
The Match Light brand is used by more than twice as many people as any competitor, but Clorox regular Kingsford charcoal is used by double those who use Match Light. Together, they account for 8% of Clorox revenue all by themselves, and that's the smallest component of the bleach maker's business.
A portfolio of leading brands
Clorox also owns brands including water-filter leader Brita, which also saw sales rise double digits during the coronavirus outbreak, but it's likely to see sales maintain that pace as people now have heightened awareness around maintaining healthy conditions.
In the company's most recent quarter, Brita sales were up by double-digit rates again, the fourth consecutive quarter they've posted such growth. While supply constraints hurt market share, the brand is still expected to be a strong performer, because once consumers purchase a pitcher, they tend to continue purchasing filter consumables, providing a long tail of sales potential.
Clorox also has solid prospects with its Glad brand of garbage bags; Burt's Bees lip balm, which should see business pick up again now that people are allowed to travel once more; Hidden Valley Ranch dressings, which hit record levels of household penetration during the lockdowns; and Fresh Step and Gain cat litter.
People are also likely to maintain more hygienic lifestyles too, which means the all-important bleach and sanitizing wipes sales should stay elevated when compared with prior years.
An appropriate valuation
Shares of Clorox are down 20% from their 52-week high and have declined about 5% year to date. At 20 times earnings, it trades at a bit of a discount to peers such as Colgate-Palmolive and Procter & Gamble, which go for 25 times earnings, and Church & Dwight at 27 times earnings.
That seems appropriate for a leading name-brand manufacturer, while its dividend yields 2.3% annually, right in line with its peers.
Clorox has committed to returning to investors $1 billion through dividends and share buybacks, and it has paid out a dividend for decades while raising the payout for over 50 consecutive years, making it a Dividend King.
Be ready to clean up
Few companies have the brand recognition Clorox possesses, and its products are leaders in most of the markets it operates in.
It's quite possible the stock will take a beating over the coming year as it posts results that disappoint beside the record turn it had in 2020, but that just means investors ought to consider buying shares if they're presented with such an opportunity.