Dividend Aristocrats are defined as companies that have increased dividend payouts each year for at least 25 consecutive years. So, it's safe to say that Dividend Aristocrats have not only survived multiple business cycles, but also showcased their ability to generate stable cash flows across these cycles.
Due to their reliable cash flows and earnings, these elite dividend stocks often deliver healthy returns to investors over time. However, one Dividend Aristocrat that is trailing the broader markets by a wide margin is Clorox (CLX), which currently offers shareholders a tasty yield of 3.79%.
In the last two decades, Clorox stock has returned 364% to shareholders, after accounting for dividends. Over this same time period, the S&P 500 Index ($SPX) has returned just over 500%. And in 2023 alone, CLX is off 5% YTD, while the S&P has gained more than 13%.
Down 40% from all-time highs, let's see if Clorox stock is a good buy right now.
How Did Clorox Perform in Q1 of Fiscal 2024?
Valued at $15.56 billion by market cap, Clorox is one of the largest cleaning product companies globally. Shares of the blue-chip company have fallen significantly since August, when a cyberattack threatened to delay production and disrupt its supply chain.
In fiscal Q1 of 2023 (ended in September), Clorox’s sales were down 20% year over year, while adjusted earnings fell by 75%. Despite the steep drawdown, Clorox beat consensus estimates in Q1.
Another reason for Clorox’s underperformance in the last year can be attributed to lower profit margins in the aftermath of the COVID-19 pandemic. Clorox experienced a spike in product demand at the onset of COVID-19 as people purchased additional cleaning supplies. Clorox, in fact, was forced to hire contract manufacturers to keep up with demand, which was more expensive than in-house manufacturing.
While demand cooled off in 2022, an inflationary environment weighed heavily on the company’s profit margins. Its gross margins fell from more than 46% in late 2021 to less than 36% in 2022. However, Clorox ended fiscal Q1 with gross margins of 39.4%.
What Do Analysts Expect From Clorox Stock?
Following 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. In a note, the analyst explained Clorox is working with retail partners to build inventory and shelf space, allowing it to grow its top line in the next 12 months. Falorni also expects Clorox to recover from the cyberattack by the end of fiscal 2025.
However, many experts remain wary on CLX - including Deutsche Bank (DB) analyst Stephen Powers, who maintained a “hold” rating on Clorox with a price target of $136, even as he raised FY24 EPS projections. Although Clorox reported revenue, gross margins, and earnings above estimates in Q1, Powers flagged the slowing demand environment, cost inflation, increased competition, and an uncertain macro backdrop as possible headwinds in the near term.
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, indicating an expected upside potential of less than 7% from current levels.
Priced at 27.4x forward earnings, CLX is not too cheap. However, long-term earnings are forecast to increase by 10.5% annually, which outpaces the median for consumer staples stocks. Coupled with similarly robust projections for operating cash flow growth, the company could support further dividend hikes. Already, Clorox has raised its dividend for more than 40 consecutive years - putting CLX on pace for Dividend King status.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
