Church & Dwight Co Inc (CHD, Financial) recently reported a daily gain of 2.12%, and a 3.71% gain over the last three months. With an Earnings Per Share (EPS) (EPS) of $1.79, the question arises: is the stock fairly valued? This article aims to answer this question through a comprehensive valuation analysis of the company. We encourage you to delve into the following sections for a detailed understanding of Church & Dwight Co's financial performance.
Company Introduction
Church & Dwight Co Inc (CHD, Financial) is a leading global producer of baking soda. The company's portfolio extends beyond baking soda, including laundry products, cat litter, oral care, deodorant, and nasal care, all sold under the Arm & Hammer brand. Its mix also includes Xtra, Trojan, OxiClean, First Response, Nair, L'il Critters/Vitafusion, Orajel, and WaterPik, which constitute more than 80% of its annual sales and profits. Church & Dwight Co derives more than 80% of its sales from its home market in the U.S.
Summarizing GF Value
The GF Value represents the current intrinsic value of a stock derived from our proprietary method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
The stock of Church & Dwight Co (CHD, Financial) appears to be fairly valued based on the GF Value. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued, and future returns may be poor. Conversely, if the share price is significantly below the GF Value calculation, the stock may be undervalued and may offer higher future returns. At its current price of $ 96.12 per share, Church & Dwight Co stock appears to be fairly valued.
Given that Church & Dwight Co is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Checking the financial strength of a company before buying its stock is crucial. Investing in companies with poor financial strength carries a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great ways to understand a company's financial strength. Church & Dwight Co has a cash-to-debt ratio of 0.17, which is worse than 69.34% of 1794 companies in the Consumer Packaged Goods industry. The overall financial strength of Church & Dwight Co is 6 out of 10, indicating that the financial strength of Church & Dwight Co is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is generally a safer investment than those with low profit margins. Church & Dwight Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $5.60 billion and Earnings Per Share (EPS) of $1.79. Its operating margin is 11.37%, which ranks better than 77.35% of 1810 companies in the Consumer Packaged Goods industry. Overall, the profitability of Church & Dwight Co is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Church & Dwight Co is 8.1%, which ranks better than 55.58% of 1713 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth is -6%, which ranks worse than 71.02% of 1515 companies in the Consumer Packaged Goods industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Church & Dwight Co's ROIC is 7.35 while its WACC came in at 6.56.
Conclusion
Overall, Church & Dwight Co (CHD, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 71.02% of 1515 companies in the Consumer Packaged Goods industry. To learn more about Church & Dwight Co stock, you can check out its 30-Year Financials here.
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