Shares of household and personal products company Church & Dwight Co. Inc. (CHD, Financial) gained more than 6% on Friday following the announcement of its most recent quarterly results.
The The New Jersey-based household products manufacturer's stock is now trading at a new historical high of $95.71, which is just a few dollars off the current highest analyst forecast of $98 per share. This rally has also pushed its valuation metrics well above the industry average. This could trigger a momentary pullback in Dwight & Church’s share price.
Highlights from recent quarter
For the period ending June 30, Church & Dwight’s Consumer Domestic segment realized net sales growth of 13.6% to $931.1 million. This boosted the overall sales growth to $1.194 billion, representing 10.6% growth on a year-over-year basis. The Consumer International segment posted the lowest growth rate of 0.5%, while the Specialty Products unit was up 3%.
On the other hand, adjusted earnings per share increased by 35.1% to 77 cents per share, which beat analyst expectations of 63 cents per share.
Church & Dwight continued to experience Covid-19-related benefits, which saw organic sales grow 8.4% driven by a volume increase of 4.9%. CEO Matthew Farrel said, "Q2 was an extraordinarily strong quarter for Church & Dwight. Both our household and personal care businesses delivered higher growth as consumers and retailers focused on core essentials.”
The company expects this growth to continue through July. Some of the categories that could benefit include gummy vitamins, women’s hair removal products, cleaners, and baking soda, among others. Church & Dwight expects strong growth in the coming quarters in the Consumer Domestic unit. The Consumer International segment could continue to experience slower growth due to global travel restrictions.
Valuation
From a valuation perspective, shares of Church & Dwight appear expensively priced compared to close peers. The company’s stock trades at a price-earnings ratio of 35.1, which is higher than Kimberly Clark Corp.’s (KMB, Financial) value of 20.44 and Unilever NV’s (UL, Financial) ratio of 22.18. Another U.S. rival, Clorox Co. (CLX, Financial), trades at a price-earnings ratio of 34.69.
Looking forward, Church & Dwight also trades at a high valuation metric with a forward price-earnings ratio of 31.55 compared to Kimberly Clark’s 20.28 and Unilever’s 23.75. It slightly beat Clorox, which is at 32.75.
Looking even further forward, Church & Dwight’s PEG ratio (five-year expected), which factors in expected earnings for the next five years, values the stock at 4.09. On the other hand, Unilever trades at a PEG ratio of 3.21. Kimberly Clark and Clorox are more expensive in this respect, trading at PEG ratios of 5.06 and 5.70.
Conclusion
In summary, shares of Church & Dwight appear to be expensively valued compared to its peers in the market. However, looking further ahead and factoring in expected earnings for the next five years, the stock appears relatively cheaper than its U.S. counterparts. Therefore, it might be time to take some profits with a view to buying more shares a few years down the line.
Disclosure: No positions in stocks mentioned.
Read more here:
- Is Berry Global Undervalued After Record Earnings?​
- 3 Financial Sector Stocks With Exciting Growth Prospects
- Recession Investing: Consumer Staples​
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
