At the start of the pandemic, when everyone was disinfecting everything , social media was rife with memes about how well Clorox must be doing. Yet like so many winners from back then, Clorox hasn't fared as well more recently.
Raymond James argues that investors willing to take a gamble on the shares can clean up. Analyst Olivia Tong initiated coverage of Clorox stock (CLX) with an Outperform rating. Her target for the stock price is $160, one of the highest on Wall Street.
That isn't saying much. Nearly half of the 19 analysts tracked by FactSet are bearish on Clorox. Only four rate it at Buy or the equivalent. And the average price target for the stock among analysts is below where the shares trade today.
Investors haven't been particularly optimistic about Clorox either. The shares are down 17.5% so far this year. That is better than the 20% slide in the S&P 500, but substantially worse than the 6% decline notched by peers tracked by the Consumer Staples Select Sector SPDR ETF (XLP).
Clorox was up 1.2% to $145.60 near midday on Wednesday.
Tong says she knows her call is contrary to the consensus view, but argues that the stock has fallen far enough that there is more potential for gains than losses. Not only is commodity inflation showing signs of moderating, but the fact that Clorox gets the vast majority of its business domestically shields it as the dollar strengthens .
Some other staples stock that are more focused on international markets have suffered as the strong greenback reduces the dollar value of sales made in other currencies.
It might seem like a tricky time for Clorox and other brands to stage a comeback, given that inflation is pushing shoppers toward private-label products to save money. Yet Tong says that while "private label will grow, we think Clorox is less at risk given its leadership positions in smaller categories, while expectations for key raw materials have started to turn."
She also says the market isn't fully accounting for the company's latest round of price increases, which could mean its results turn out to be better than Wall Street expects.