Speaker is bearish on CLX: a 6% risk-reward ratio; the consumer home brands era is somewhat over amid intense store-brand competition; its 3-5% sales-growth target is just inflation while sales decline. He expects acquisitions to show growth and warns that a recession shift to private-label brands could eliminate the dividend, with payout cuts not taken into account.
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Clorox, a lot of people have asked me about it, and I think it has a 6% risk-reward ratio. I think the era of consumer home brands is somewhat over due to intense competition from department store brands.
Their goal is to achieve sales growth of 3 to 5% , which is just inflation, keep that in mind. They have free cash flow , but are experiencing a decline in sales.
What happens when management sees a drop in sales? They resort to acquisition. Let's spend two billion dollars to acquire something to demonstrate growth. This is usually what the seller is trying to get rid of.
They can pay out cash dividends, but if the situation gets worse, say in a recession, and people turn more to private-label brands that are available everywhere, then that will disappear.
Dividend payout reductions are never taken into account.