Stock Analysis: Clorox Co. (CLX)

Posted by D4L | Monday, April 07, 2008 | | 10 comments »

This analysis was updated on 4/8/2008 due to erroneous dividend data. Thanks to MG and Dividend Growth Investor for pointing it out. My apologies for any confusion this may have caused. See the Comments to this post for more specific information. -- D4L

Linked here is a PDF copy of my detailed analysis of the Clorox Co. (CLX) (alt.1, alt.2). 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, and others.

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 and 4.) Graham Number. CLX is trading at a discount to 1.) and 3.) above. Its tangible book value is negative, so a Graham Number could not be calculated. If I exclude the high and low valuation, and average the remaining two valuations, CLX is trading at a 15.0% premium. CLX has a Star deducted for trading at a premium.

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 and 5.) Payout 15% of avg. CLX earned a Star in 3.) and 4.) above. 1-Yr. > 5-Yr Growth could indicate accelerating dividend growth.

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. and 2.) Years to >MMA. CLX did not earn any Stars in this section. At its current yield of 2.81% it would take 12 years for it to earn in excess of a 4.61% MMA. CLX's NPV MMA Diff. of $1,300 (per thousand) is only slightly better than what could be earned from depositing your money in a high-yield MMA.

Other: CLX is a S&P 500 Dividend Aristocrat and is a member of The Broad Dividend Achievers™ Index. For nine straight quarters from Jul/2000 through Jul/2002, CLX paid a flat $0.21/share.

Conclusion: Quantitatively, CLX lost one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned no Stars in the Dividend Income vs. MMA section for a total of zero Stars, which rates it as a 1 Star-Very Weak stock.

A stable demand for household and personal care products, which is generally not affected by changes in the economy or by geopolitical factors, is a positive for CLX. Based on the recognizable names in the description above, it is easy to understand why CLX carries so much intangible value on its balance sheet. Unfortunately, its tangible net assets are negative. In Jul/2007, CLX increased its dividend 29% from $0.31/share to $0.40/share. However, the ten years prior to that it averaged an 9.0% increase. Given, its powerful brands I have added it to my active watch list for future consideration.

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 do not own shares of CLX (0.0% of my Income Portfolio).

What are your thoughts on CLX?


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10 comments

  1. MG // April 8, 2008 at 7:15 AM

    D4L,

    With respect to dividends:

    Fiscal 1999 = $0.71
    Fiscal 2000 = $0.80
    Fiscal 2001 = $0.84
    Fiscal 2002 = $0.84
    Fiscal 2003 = $0.88

    CLX has never cut their dividend.

  2. Dividends4Life // April 8, 2008 at 8:30 AM

    MG: My data source (S&P) uses a calendar year to evaluate share price and dividends. I had suspected the reason CLX was listed as an Aristocrat and Achiever was based on a fiscal year, though I thought the requirement was raising dividends, not the absence of a reduction.

    Best Wishes,
    D4L

  3. Dividend Growth Investor // April 8, 2008 at 10:58 AM

    Year Dividend
    1997 0.61
    1998 0.68
    1999 0.76
    2000 0.82
    2001 0.84
    2002 0.85
    2003 0.98
    2004 1.08
    2005 1.12
    2006 1.16
    2007 1.42

    Seems like we had an increase every calendar year. In addition, the S&P seem to delete from the aristocrats list some stocks which have had more than 25 straight years of dividend increases, but had a spinoff and as a result the nominal dividends were cut ( but in reality shareholders did not suffer a decrease in their quartelry dividend income). One stock like that is MO- it spun off KFT in 07. this year it spun off PM.

  4. Dividends4Life // April 8, 2008 at 12:35 PM

    DGI: There is something odd in the S&P data. Here is a comparison of S&P vs Yahoo on a calendar year:

    -----S&P--Yahoo---
    1998 0.64 0.68
    1999 0.76 0.76
    2000 0.61 0.82
    2001 0.84 0.84
    2002 0.84 0.85
    2003 0.88 0.98
    2004 1.08 1.08
    2005 1.10 1.12
    2006 1.14 1.16
    2007 1.20 1.42

    The real oddity is 2000. It is as if S&P dropped a dividend (0.20 + 0.20 + 0.21 = 0.61)? As you can see the differences persist all the way through 2007. Based on this I will update my analysis using the Yahoo dividends and repost.

    Best Wishes,
    D4L

  5. Dividends4Life // April 8, 2008 at 1:23 PM

    I updated this analysis due to the erroneous dividend data. Thanks to MG and Dividend Growth investor for pointing it out.

    Here is a link to the S&P page I used with the erroneous data. I would be interested if anyone knows if there is a valid reason why there are so many years of differing dividend data.

    Link to S&P page.

    My apologies for any confusion this may have caused.

    Best Wishes,
    D4L

  6. Dividend Growth Investor // April 8, 2008 at 1:25 PM

    The S&P data has missed one of the payments ( Yahoo does it too)

    http://www.thecloroxcompany.com/investors/stockinfo/dividend_split.html

  7. Dividend Growth Investor // April 9, 2008 at 10:24 AM

    Seems like MG pointed out the issue. I just got credit for his work :-)
    D4L,

    I was wondering where you get your historical EPS data from? I use morningstar. Unfortunately though my EPS numbers vary dramatically for 1998 and 1999 for USB.

  8. Dividends4Life // April 9, 2008 at 12:12 PM

    I primarily use S&P (see my 3rd comment on this post for a link to a sample report). Up to this point S&P had been solid, when there were discrepancies, S&P was correct. When I want to look at quarterly data, I use Yahoo. I have included a link to Yahoo on the "Tools" page. Like you, I also use Morningstar.

    In the future, I will cross check my dividend data against a different source.

    Best Wishes,
    D4L

  9. Dividend Growth Investor // April 9, 2008 at 2:17 PM

    I was not trying to say that your analysis is incorrect.
    I was asking bc I was working on an analysis of USB. Morningstar ( which supposedly uses S&P) had certain EPS numbers for 1998 and 1999, while other sources claimed completely different results.

  10. Dividends4Life // April 9, 2008 at 6:50 PM

    DGI: I didn't take your comment as saying anything about my analysis. No problem here.

    As for USB 1998 & 1999 EPS numbers:

    S&P: '98 0.65; '99 0.87
    Yahoo: '98 0.553 '99 0.617
    USB: '98 ?0.40? '99 0.463

    I can't find two sources that agree either, and the range of variability is high.

    Best Wishes,
    D4L

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