Why UBS Initiated Clorox (CLX) as a

NEW YORK (TheStreet) -- UBS initiated coverage of Clorox (CLX) with a "sell" rating and $80 price target. The firm said top-line pressures with limited organic growth prospects and commodity risks loom. 

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TheStreet Ratings team rates CLOROX CO/DE as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate CLOROX CO/DE (CLX) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, expanding profit margins, increase in stock price during the past year and notable return on equity. We feel these strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • CLX's revenue growth has slightly outpaced the industry average of 1.2%. Since the same quarter one year prior, revenues slightly increased by 0.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • CLOROX CO/DE's earnings per share declined by 5.4% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CLOROX CO/DE increased its bottom line by earning $4.32 versus $4.11 in the prior year. This year, the market expects an improvement in earnings ($4.47 versus $4.32).
  • 45.26% is the gross profit margin for CLOROX CO/DE which we consider to be strong. Regardless of CLX's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 8.64% trails the industry average.
  • In its most recent trading session, CLX has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Household Products industry and the overall market, CLOROX CO/DE's return on equity significantly exceeds that of both the industry average and the S&P 500.

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