Once More Unto The Bleach: Goldman Sachs Downgrades Clorox

Decreased volume and competitive headwinds are likely to interfere with growth for The Clorox Co. (NYSE: CLX), according to Goldman Sachs. 

The Analyst

Analyst Jason English downgraded Clorox from Neutral to Sell and lowered the price target from $127 to $112.

The Thesis

Goldman's lowered valuation projection is based on the company’s intent to remain small and independent, English said in the downgrade note. (See the analyst's track record here.) 

The U.S. marketplace is becoming an exceedingly difficult market to thrive in, and this makes rising above the competition difficult, the analyst said. 

Other headwinds include challenging outlooks on both charcoal — which is steadily declining — and trash bags, due to an expired patent protection that is allowing competitors to recreate the product, English said. 

The analyst said he expects these headwinds to be apparent this year.

Positive changes can be made only if Clorox demonstrates the ability to withstand price increases without experiencing volume declines, according to Goldman Sachs. 

"Our view is predicated in part on an expectation that branded and competitive headwinds will result in a material volume deceleration for the company, and evidence to the contrary would cause us to become more constructive," English said.

"We also expect CLX's categories to realize minimal growth in the U.S., especially in areas such as charcoal, water filters and bleach." 

Price Action

Clorox shares were trading down more than 4 percent to $129.50 at the time of publication Wednesday afternoon. 

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