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Is CHD Stock a Buy, Sell or Hold at a P/E Multiple of 28.4X?
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Church & Dwight Co., Inc. (CHD - Free Report) is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 28.42, higher than the industry average of 23.72 and the S&P 500’s 21.81. This inflated valuation suggests that the market is pricing in high growth expectations, but it also raises questions about whether the company can deliver results that justify such a premium. CHD’s Value Score of D adds to these concerns.
Image Source: Zacks Investment Research
Shares of Church & Dwight have dipped 3.8% in the past three months against the industry’s growth of 6%. The household, personal care and specialty product company trailed the broader Zacks Consumer Staples sector and the S&P 500's respective growth of 5.7% and 4.3% during the same period.
While a high valuation and the stock's recent underperformance suggest caution, the company's strong brand and long-term growth prospects may still appeal to investors.
Image Source: Zacks Investment Research
Current Challenges for Church & Dwight
Church & Dwight has been grappling with rising marketing expenses over recent quarters. The company expects marketing costs to represent approximately 11% of sales in 2024. Its adjusted SG&A, as a percentage of sales, is forecasted to increase year over year, contrary to previous expectations of remaining flat. This increase stems from costs tied to the Graphico acquisition and higher-than-expected incentive compensation.
The company is also navigating headwinds from changes in consumer spending patterns. Recent data points to a decline in consumption during June and July, with dollar consumption growth slowing from 4.5% to about 2%. This trend reflects consumers adjusting their behavior in response to ongoing economic challenges and rising costs. While Church & Dwight's mix of value and premium products positions it well for these shifts, the overall slowdown signals that future growth could be more tempered compared to the stronger performance seen in the year's first half.
Church & Dwight’s gummy vitamins business continues to be a drag on overall growth, with a notable decline of 10.9% in consumption in the second quarter compared to the previous year. Although there are efforts to stabilize the segment through new packaging and formulas, the recovery has been slower than anticipated, impacting overall performance in the personal care category.
Although the company expects its brands to outperform the broader categories in the latter part of the year, it has revised its organic revenue growth projection to roughly 4%, down from the earlier range of 4-5% for 2024. Reported sales growth is anticipated to be slightly lower at around 3.5%, impacted by divestitures and unfavorable currency exchange rates. Adjusted EPS growth is now projected to land at the lower end of the 8-9% range.
CHD Estimates: What’s on the Horizon?
The Zacks Consensus Estimate for EPS has seen downward revisions. Over the past 30 days, analysts have lowered their estimates for the current and next fiscal year by a penny each to $3.43 per share and $3.72, respectively. This downward adjustment reflects a negative sentiment among analysts and suggests potential challenges in achieving projected profitability.
CHD’s Growth Initiatives on Track
Church & Dwight's solid brand equity grants it significant pricing power, enabling the company to pass rising costs onto consumers with minimal effect on demand, supporting its profitability. In the second quarter of 2024, favorable pricing contributed to the company’s organic sales, which grew by 4.7%. This growth was driven by a 3.5% increase in volume and a 1.2% boost from a favorable product mix and pricing. Pricing is expected to rise by 1% for full-year 2024.
E-commerce continues to be a growing part of Church & Dwight's business, now accounting for 21.2% of global sales as of the second quarter. The company’s efforts to expand its direct-to-consumer platforms and optimize its omnichannel presence position it to capture the ongoing shift in consumer purchasing preferences toward online channels.
Church & Dwight’s diverse portfolio of trusted consumer brands, such as Arm & Hammer, OxiClean and Trojan, remains a key driver of revenues across various segments. These household staples are often considered essential goods, ensuring steady demand, even in challenging economic conditions. CHD has consistently demonstrated its ability to innovate in premium and niche product categories, such as the Flawless Beauty and Waterpik brands. These higher-margin, faster-growing categories have helped diversify the company's product offering and enhance earnings. Continued innovation and targeted acquisitions in these spaces position the company for growth beyond its traditional categories, providing upside potential for the stock.
Church & Dwight saw significant improvement in profitability, with the adjusted gross margin expanding by 150 basis points to 45.4% in the second quarter of 2024, driven by productivity gains, improved volume and a favorable product mix. Such operational efficiencies are crucial for mitigating inflationary pressures and higher manufacturing costs, demonstrating Church & Dwight’s focus on cost management and strategic pricing. This margin expansion offers strong support for future earnings growth.
The company increased its full-year forecast for adjusted gross margin expansion to approximately 100-110 bps, up from the previously expected 75 bps increase. Management expects higher product pricing, improved mix, increased volume and enhanced productivity to offset the rise in manufacturing costs.
Investor Strategy for Church & Dwight
Church & Dwight's elevated valuation and recent underperformance relative to peers are concerning. The company is contending with rising marketing costs and fluctuating consumer spending. However, with a solid brand image, innovative products and strategic expansions, Church & Dwight shows potential for long-term success. Current investors should retain their positions in CHD stock, while new investors might wait for a more favorable entry point. Church & Dwight currently carries a Zacks Rank #3 (Hold).
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods (FLO - Free Report) , a packaged bakery food company, currently carries a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.
McCormick (MKC - Free Report) is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.1% and 5.6%, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 8.3%, on average.
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Is CHD Stock a Buy, Sell or Hold at a P/E Multiple of 28.4X?
Church & Dwight Co., Inc. (CHD - Free Report) is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 28.42, higher than the industry average of 23.72 and the S&P 500’s 21.81. This inflated valuation suggests that the market is pricing in high growth expectations, but it also raises questions about whether the company can deliver results that justify such a premium. CHD’s Value Score of D adds to these concerns.
Image Source: Zacks Investment Research
Shares of Church & Dwight have dipped 3.8% in the past three months against the industry’s growth of 6%. The household, personal care and specialty product company trailed the broader Zacks Consumer Staples sector and the S&P 500's respective growth of 5.7% and 4.3% during the same period.
While a high valuation and the stock's recent underperformance suggest caution, the company's strong brand and long-term growth prospects may still appeal to investors.
Image Source: Zacks Investment Research
Current Challenges for Church & Dwight
Church & Dwight has been grappling with rising marketing expenses over recent quarters. The company expects marketing costs to represent approximately 11% of sales in 2024. Its adjusted SG&A, as a percentage of sales, is forecasted to increase year over year, contrary to previous expectations of remaining flat. This increase stems from costs tied to the Graphico acquisition and higher-than-expected incentive compensation.
The company is also navigating headwinds from changes in consumer spending patterns. Recent data points to a decline in consumption during June and July, with dollar consumption growth slowing from 4.5% to about 2%. This trend reflects consumers adjusting their behavior in response to ongoing economic challenges and rising costs. While Church & Dwight's mix of value and premium products positions it well for these shifts, the overall slowdown signals that future growth could be more tempered compared to the stronger performance seen in the year's first half.
Church & Dwight’s gummy vitamins business continues to be a drag on overall growth, with a notable decline of 10.9% in consumption in the second quarter compared to the previous year. Although there are efforts to stabilize the segment through new packaging and formulas, the recovery has been slower than anticipated, impacting overall performance in the personal care category.
Although the company expects its brands to outperform the broader categories in the latter part of the year, it has revised its organic revenue growth projection to roughly 4%, down from the earlier range of 4-5% for 2024. Reported sales growth is anticipated to be slightly lower at around 3.5%, impacted by divestitures and unfavorable currency exchange rates. Adjusted EPS growth is now projected to land at the lower end of the 8-9% range.
CHD Estimates: What’s on the Horizon?
The Zacks Consensus Estimate for EPS has seen downward revisions. Over the past 30 days, analysts have lowered their estimates for the current and next fiscal year by a penny each to $3.43 per share and $3.72, respectively. This downward adjustment reflects a negative sentiment among analysts and suggests potential challenges in achieving projected profitability.
CHD’s Growth Initiatives on Track
Church & Dwight's solid brand equity grants it significant pricing power, enabling the company to pass rising costs onto consumers with minimal effect on demand, supporting its profitability. In the second quarter of 2024, favorable pricing contributed to the company’s organic sales, which grew by 4.7%. This growth was driven by a 3.5% increase in volume and a 1.2% boost from a favorable product mix and pricing. Pricing is expected to rise by 1% for full-year 2024.
E-commerce continues to be a growing part of Church & Dwight's business, now accounting for 21.2% of global sales as of the second quarter. The company’s efforts to expand its direct-to-consumer platforms and optimize its omnichannel presence position it to capture the ongoing shift in consumer purchasing preferences toward online channels.
Church & Dwight’s diverse portfolio of trusted consumer brands, such as Arm & Hammer, OxiClean and Trojan, remains a key driver of revenues across various segments. These household staples are often considered essential goods, ensuring steady demand, even in challenging economic conditions. CHD has consistently demonstrated its ability to innovate in premium and niche product categories, such as the Flawless Beauty and Waterpik brands. These higher-margin, faster-growing categories have helped diversify the company's product offering and enhance earnings. Continued innovation and targeted acquisitions in these spaces position the company for growth beyond its traditional categories, providing upside potential for the stock.
Church & Dwight saw significant improvement in profitability, with the adjusted gross margin expanding by 150 basis points to 45.4% in the second quarter of 2024, driven by productivity gains, improved volume and a favorable product mix. Such operational efficiencies are crucial for mitigating inflationary pressures and higher manufacturing costs, demonstrating Church & Dwight’s focus on cost management and strategic pricing. This margin expansion offers strong support for future earnings growth.
The company increased its full-year forecast for adjusted gross margin expansion to approximately 100-110 bps, up from the previously expected 75 bps increase. Management expects higher product pricing, improved mix, increased volume and enhanced productivity to offset the rise in manufacturing costs.
Investor Strategy for Church & Dwight
Church & Dwight's elevated valuation and recent underperformance relative to peers are concerning. The company is contending with rising marketing costs and fluctuating consumer spending. However, with a solid brand image, innovative products and strategic expansions, Church & Dwight shows potential for long-term success. Current investors should retain their positions in CHD stock, while new investors might wait for a more favorable entry point. Church & Dwight currently carries a Zacks Rank #3 (Hold).
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The Chef’s Warehouse (CHEF - Free Report) , which engages in the distribution of specialty food products, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
Flowers Foods (FLO - Free Report) , a packaged bakery food company, currently carries a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial-year sales and earnings implies growth of around 1% and 5%, respectively, from the year-ago reported numbers.
McCormick (MKC - Free Report) is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.1% and 5.6%, respectively, from the year-ago reported figures. MKC has a trailing four-quarter earnings surprise of 8.3%, on average.