Typically, investors consider consumer staple stocks as safe bets during economic slowdowns or recessions. The defensive nature of consumer staples and attractive dividends make them desirable during challenging times.
Generally, consumer staples do not deliver spectacular sales growth rates. However, COVID-19 changed that for some companies like Clorox. Heightened focus on sanitizing and cleaning led to a major spike in Clorox’s sales. Procter & Gamble is another staples company that benefited from higher pandemic-led demand for some of its products.
Using the TipRanks’ Stock Comparison tool, we lined up the two staples alongside each other to see which stock offers the most compelling investment opportunity right now.
Clorox has been experiencing an unprecedented demand for its disinfecting and cleaning products since the COVID-19 outbreak. The company finished fiscal 2020 on a strong note with consumers stocking up its namesake Clorox bleach brand and other cleaning products to fight the pandemic. Despite additional capacity, many of the company’s products went out of stock due to the elevated demand.
In the fiscal fourth quarter (April to June quarter), Clorox’s sales surged 22% year-over-year to $1.98 billion. The top line was supported by double-digit growth across all the four segments – Health and Wellness, Household, Lifestyle and International. The Health and Wellness segment’s sales were up 33%, driven by strong sales of cleaning products.
The stay-at-home mandates helped in driving higher sales of bags and wraps as well as grilling products and led to a 17% increase in the Household segment’s sales. The Health and Wellness and Household segments together accounted for over 71% of Clorox’s fourth-quarter sales. Impressive fourth-quarter sales led to an EPS of $2.41, reflecting a 28.2% year-over-year growth. However, higher manufacturing and logistics costs as well as advertising investments were a drag on the bottom line.
Increased cleaning and hygiene needs might continue to benefit Clorox. However, the rate of sales growth might not be as strong as that in the fiscal fourth quarter. The company’s fiscal 2020 sales and EPS grew by 8.2% and 16.5%, respectively. Clorox predicts a flat to low single-digit rise in its fiscal 2021 sales and a mid-single-digit decline to mid-single-digit growth in EPS.
Clorox aims to boost its sales through innovation. Also, recent strategic partnerships with United Airlines, Uber Technologies, AMC Theaters and Cleveland Clinic to maintain safety protocols amid the pandemic are expected to further enhance sales.
Clorox stock has gained 52% year-to-date. Despite robust sales momentum, several analysts are on the sidelines due to valuation concerns. Following the fiscal fourth-quarter results, Credit Suisse analyst Kaumil Gajrawala raised the price target for Clorox stock to $200 from $185 while maintaining a Neutral rating.
He noted, “Clorox delivered a strong quarter behind continued elevated demand across its portfolio due to COVID-19. Capacity shortage, particularly in cleaning and disinfecting products, has been met with inventory drawdowns and new co-packers. Firm is investing aggressively behind its brands and increased production. This should support high rates of growth through the remainder of 2020 as consumption shows little signs of abating and inventories (both company and channel) still need to get replenished. Valuation keeps us on the sidelines.”
Overall, Clorox has a Hold analyst consensus rating from the Street based on 2 Buys, 5 Holds and 2 Sells. The average price target of $223.33 implies a possible decline of 4.3% over the next year. (See Clorox stock analysis on TipRanks)
Leading staples firm Procter & Gamble is recognized worldwide through several popular brands, including Ariel, Gillette, Head & Shoulders, Pampers and Tide. Since the COVID-19 crisis, Procter & Gamble has been experiencing higher demand for categories like fabric care, home cleaning and dishwashing products, as well as baby, feminine and family care products. The company’s personal health care business also gained from pandemic-led demand.
However, movement restrictions and travel disruptions to curb the virus have hurt the sales of some of the company’s beauty and grooming products. Overall, Procter & Gamble’s fiscal fourth-quarter sales of $17.7 billion were up 3.5% year-over-year. The fourth-quarter adjusted EPS grew by 5.5% to $1.16. Higher sales coupled with productivity savings drove the earnings growth.
Summarizing fiscal 2020, the company’s sales and EPS rose 4.8% and 13.3%, respectively. Looking ahead, Procter & Gamble expects sales growth of 1% to 3% in fiscal 2021. It predicts fiscal 2021 adjusted EPS growth in the range of 3% to 7%. The company’s conservative guidance compared to fiscal 2020 reflects the impact of a challenging macro environment, the corona crisis and intense competition.
Procter & Gamble stock has risen 7% year-to-date and several analysts raised their price target for PG following the company’s fiscal fourth-quarter results. Berenberg Bank analyst James Targett upped his price target to $136 from $123.
In a research note, he explained, “We understand investors’ current attraction to P&G due to its categories, balance sheet, buyback and dividend. These factors position it well into FY21. P&G is showing encouraging market share momentum (up 50bp globally in Q4), with higher shares online, and management again reiterated that P&G’s product offer is better positioned than in the previous recession.” However, the analyst maintained his Hold rating owing to “less exciting” valuation.
Procter & Gamble has a cautiously optimistic Moderate Buy analyst consensus rating based on 8 Buys and 4 Holds. The Street’s average price target of $141.08 reflects an upside potential of 5.21% over the next 12-months. (See Procter & Gamble stock analysis on TipRanks)
So which stock is better?
Both Clorox and Procter & Gamble might continue to enjoy strong demand for certain categories, especially cleaning products, even when the pandemic fades. However, Wall Street consensus rating, upside potential and Clorox’s comparatively lofty valuation make Procter & Gamble a more compelling investment. Procter & Gamble’s current dividend yield of 2.36% compared to Clorox’s 1.90% also acts in its favor.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment
