Clorox Pullback Presents A Clean Opportunity To Buy

BMO Capital’s Shannon Coyne believes Clorox Co (NYSE: CLX) should be a “long-term core holding,” and that the recent selloff presents a buying opportunity.

Coyne initiated coverage of the company with an Outperform rating and price target of $136.

Attractive Opportunity

The analyst mentioned that the company has demonstrated “excellent execution, built an advantageous portfolio based on megatrends, has plenty of dry powder for M&A, and landed at the top of our proprietary Digital Maturity Curve,” which is expected to “lead to a significant competitive advantage.”

Coyne pointed out that CEO Benno Dorer has ushered in a culture of growth within Clorox that fosters agility, speed and innovation, which would drive the company’s ability to “widen its competitive moat over time.”

Innovation Leader

While leading in terms of innovation, Clorox believes it would see one of its strongest innovation cycles in H2 FY 2017.

Although management has not provided details regarding this, the innovation in H2 is likely to be more broad-based than in past years, with each of Clorox’s segments launching new products.

“We estimate every 5 points of incremental sales Growth and 100bps improvement in margins adds ~7-10bps to total company margins. Due to the strength in the dollar, International margins have dropped to ~7 percent from 13 percent over the past five years,” the analyst stated.

Coyne believes the company’s margins would recover to the double digits over time.