Goldman Sachs has reaffirmed its Sell rating on Clorox (NYSE:CLX) shares, with a price target of $132.00. The firm anticipates a challenging first fiscal quarter report for Clorox, citing negative risk/reward dynamics as the company approaches its earnings release.
The analysis pointed to increased promotional activity, particularly in categories like litter, which are above pre-pandemic levels, and a potential slowdown in sales growth.
The upcoming quarterly results, expected to be disclosed in a few weeks, are likely to reflect the impact of these trends. Goldman Sachs has adjusted its forecasts for Clorox's organic sales growth and gross margin to the lower end of management's guidance, suggesting there could be a downside to the current consensus estimates among analysts.
The firm also noted concerns over consumer health potentially restricting retail inventory replenishment, especially in Clorox's Household segment, which might result in some sales being deferred to the second fiscal quarter.
Clorox's management has indicated that they expect stronger top-line growth in the latter half of the fiscal year, driven by a normalization in trade promotions and the divestiture of its Vitamins, Minerals, and Supplements (VMS) business.
However, the long-term organic growth target of 3-5% set by Clorox's management hinges on a rebound in US category retail sales growth to 2.0-2.5%, up from a flat to 1.0% projection for FY25, and on achieving market share gains among other factors.
Despite these ambitious targets, Clorox's stock is trading at a modest premium compared to its peers in the Home and Personal Care (HPC) industry on a calendar year 2025 Price/Earnings (P/E) basis.
In other recent news, Clorox has seen a series of developments. Jefferies has upgraded Clorox's stock to Buy from Hold, setting a new price target at $187, up from the previous $174.
This upgrade is based on improving top-line growth and increased operating leverage, indicating Clorox's potential recovery. Jefferies also provided new earnings per share estimates for fiscal years 2025 to 2028, projecting an 8% compound annual growth rate.
Clorox has also finalized the sale of its Better Health Vitamins, Minerals, and Supplements business to Piping Rock Health Products, a move intended to reduce business volatility and drive sustainable growth. Additionally, the company reported its seventh consecutive quarter of margin expansion.
On the analyst front, Exane BNP Paribas (OTC:BNPQY) increased its price target for Clorox to $140, maintaining an underperform rating. Jefferies and Citi also adjusted their price targets, citing the company's potential to regain market share and deliver on sales growth guidance.
Moreover, CloroxPro, a branch of Clorox, has expanded its EcoClean line with plant-based Disinfecting Wipes, reflecting the company's commitment to sustainability. The company also aims for 20-25% sales growth in the first quarter of the fiscal year and plans to return to pre-pandemic gross margins.
InvestingPro Insights
While Goldman Sachs maintains a cautious stance on Clorox (CLX), recent data from InvestingPro offers a more nuanced perspective. Despite the challenges highlighted in the article, Clorox has demonstrated resilience in certain areas. An InvestingPro Tip reveals that Clorox has raised its dividend for an impressive 48 consecutive years, showcasing a commitment to shareholder returns even in challenging times.
The company's P/E Ratio (Adjusted) stands at 33.28 for the last twelve months as of Q4 2024, which is lower than the unadjusted P/E of 71.21. This adjusted figure may provide a more accurate representation of Clorox's valuation, especially considering the company's dividend history and market position.
Another InvestingPro Tip indicates that Clorox is trading at a low P/E ratio relative to its near-term earnings growth. This could suggest potential undervaluation, contrasting with Goldman Sachs' Sell rating. It's worth noting that Clorox's stock has shown strong performance recently, with a 21.92% price total return over the past three months.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and metrics to further evaluate Clorox's financial health and market position. The platform currently lists 10 tips for Clorox, providing a broader context for investment decisions beyond the concerns raised in the article.
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