With Obstacles To Growth In Sight, Argus Downgrades Clorox

Margin pressures and private-label competition could impede growth at Clorox Co CLX, according to Argus.

The Analyst

Argus analyst John Staszak downgraded shares of Clorox from Buy to Hold.

The Thesis

Clorox could see weak organic growth despite benefiting from low-cost operations and strong market share, Staszak said in a Thursday note. (See the analyst's track record here.)

The analyst said he projects few near-term catalysts for Clorox.

Helped by a 61-cent-per-share benefit from the recently signed Tax Cuts and Jobs Act, Clorox reported above-consensus EPS for its fiscal second quarter Feb. 2, Staszak said. Citing the lower effective tax rate, Clorox raised its 2018 EPS estimate from a range of $5.47-$5.67 to $6.17-$6.37, the analyst said. The revenue growth guidance was maintained at 1-3 percent.

Argus raised its earnings estimates for 2018 from $5.75 to $6.25, and for 2019 from $6.10 to $6.60.

"Clorox pays a dividend with a yield of about 2.6 percent and is part of the S&P "Dividend Aristocrats" group — companies that have increased their dividends every year for at least 25 years," Staszak said.

Clorox shares are fairly valued, with its stable, diverse operations and consistent dividend growth adequately reflected in the current stock price, according to Argus. The firm said it could consider returning the stock to its Buy list if organic growth accelerates and input costs moderate more than expected.