Despite a broader market rally, Clorox (CLX 0.69%) is hovering around its lowest level in the last six months. The company's latest earnings report and revised guidance have added fuel to a fire of disappointment among Clorox investors, who have seen the company go from a period of breakneck growth to getting caught offsides after pandemic-induced cleaning and hygiene habits proved to be temporary.
Here's what's going wrong for Clorox, why the valuation is attractive, and why the high-yield dividend stock is worth buying now.
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A struggling business with inflated costs
When you think of Clorox, bleach and other disinfectant products probably come to mind. But the consumer goods company is far more diverse than that, with product categories spanning cleaning, grilling, bags, wraps, cat litter, water filtration, personal care, and food. Clorox owns many top brands, including Glad, Kingsford, Brita, Hidden Valley Ranch, Burt's Bees, and more.
Clorox's leadership across product categories and diversified business model make it a recession-resistant, reliable dividend stock when things are going well. Unfortunately, Clorox has been struggling for a few years now. At first, it was due to an unexpected demand collapse as pandemic restrictions eased. But more recently, it was a cyberattack that heavily disrupted Clorox's internal processes.
If there were a chart to summarize the current state of Clorox's business, it would be the following.
CLX Total Operating Expenses (TTM) data by YCharts
Clorox's operating expenses -- led by sales, general, and administrative (SG&A) costs -- have been on the rise. Clorox expects SG&A expenses to make up 16% to 17% of revenue for the fiscal year. But these high costs have not translated to growing operating income. In fact, operating income is moving in the opposite direction, indicating investments are not paying off -- at least in the short term.
Clorox lowered its fiscal year earnings expectations and is now forecasting sales to fall in the lower end of the guided range.
Clorox's valuation is reasonable, given the low expectations
Given all the bad news, you may wonder why Clorox is worth considering now. As bad as its results have been over the last few years, the future is bright, and the stock has reached an attractive valuation for patient investors. And because the stock market is forward-looking, a runway for future success matters more than past slip-ups.
Clorox management is confident that the company has turned the corner. Clorox CEO Linda Rendle said the following on the most recent earnings call:
We made substantial progress rebuilding gross margins, continuing to target returning to pre-pandemic levels over time. We launched innovation invested in our brands and capabilities, progressed our streamlined operating model and digital transformation, and completed the divestiture of our Argentina business, which supports our goal of evolving our portfolio to deliver more consistent and profitable growth.
Analyst consensus estimates indicate that Wall Street believes Clorox is undergoing a comeback, but is hesitant to declare Clorox has fully turned its business around.
Fiscal 2024 consensus estimates call for $5.93 in earnings per share (EPS) and $6.47 in 2025 EPS. Based on a stock price of $133.70 and fiscal 2026 earnings estimates, Clorox would have a price-to-earnings ratio of 20.7. That's not a bad price, but it's not a great one either. However, I would argue that these forecasts are fairly negative.
In fiscal 2019, Clorox's last full financial year before the pandemic, the company earned $6.32 in diluted EPS -- which is nearly as high as fiscal 2026 expectations. This means Clorox is merely expected to match where it was pre-pandemic, rather than return to growth.
Investors confident that Clorox is finding its footing and can build upon a stronger foundation are getting an especially good deal for the stock.
A passive income powerhouse
The dividend is another major reason to own the stock long term. Clorox has increased its dividend for 46 consecutive years and has a yield of 3.6%. That's significantly higher than other stodgy consumer staples dividend stocks like Procter & Gamble or Walmart. Clorox's yield is well above its historical range because the stock has performed poorly while dividends have increased.
CLX Dividend Yield data by YCharts
All told, investors are earning a sizable amount of passive income while waiting for Clorox to complete its turnaround and return to growth.
Clorox is worth the wait
Clorox is out of favor and has sold off for mostly good reasons. At times like these, it's especially important to zoom out and consider whether challenges are persistent or can be overcome. Management has made the necessary adjustments to get costs under control. However, a sluggish turnaround could add more pressure on the stock.
Clorox is a great choice if you're looking for a high dividend yield and have at least a three- to five-year time horizon. However, there are better choices if you are risk-averse and are looking for a more surefire bet.
