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Clorox Contrarian

Clorox: A Contrarian Bet As Lower Gross Margins Could Be Temporary Headwind

Clorox (CLX) reported a horrendous quarter for Q2 FY 2022. The company beat revenue estimates, but they still declined in comparable periods. However, Clorox missed non-GAAP earnings per share estimates by a wide margin. The share price was slammed and fell about (-15%) in one day. The culprit was higher input commodity costs and transportation costs resulting in a massive gross margin contraction of 1,240 basis points to ~33% from ~45%. In addition, Clorox cut its non-GAAP EPS estimates to $4.25 – $4.50 from $5.40 – $5.70 for the quarter. As a result, analysts are now bearish on Clorox. The Seeking Alpha ratings summary is Hold from Wall Street and Sell from SA Authors. In fact, the last ten articles have either been a sell or hold by SA authors as of this writing. Clearly, the investor sentiment about Clorox is strongly negative. Clorox was also the worst performing Dividend Aristocrat in 2021. However, despite the bad news about Clorox, an investor must always ask whether it is time to be contrarian.

Clorox’s stock price is now trading at levels seen before the COVID-19 pandemic in 2018. Investors must ask themselves whether Clorox is worth less than before the pandemic. In addition, Clorox has leading brands with the No. 1 or No. 2 market position for the great majority of them. Furthermore, Clorox is a Dividend Champion and Dividend Aristocrat with 45 years of dividend increases. The dividend yield is now over 3.25%, which is attractive. Lastly, Clorox is not standing still and is working to increase margins, although it may take time.

Hence, below are three reasons to why it might be a good time to be contrarian for Clorox.

Clorox Has Market Share Leadership

Clorox is a leader in mid-size consumer products. The company operates in three business segments: Health & Wellness (41% of revenue), Household (27% of revenue), and Lifestyle (15% of revenue). Clorox had $7,341 million in revenue in fiscal 2021 from 26 countries. Clorox is known for its cleaning supplies. The company also sells trash bags, kitty litter, grilling charcoal, water filtration systems, and more…

Disclosure: Long CLX

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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