Clorox vs. Newell Brands: Which Consumer Defensive Stock is a Better Investment?

Headquartered in Oakland, California, The Clorox Company (CLX) manufactures and markets consumer and professional products internationally. It has four operating segments: Health and Wellness; Household; Lifestyle; and International. Newell Brands Inc. (NWL) designs, manufactures, sources, and distributes consumer and commercial products worldwide. It has five operational segments: Commercial Solutions; Home Appliances; Home Solutions; Learning and Development; and Outdoor and Recreation.

Concerns over higher inflation and the Fed’s battle against it have caused immense market volatility. Moreover, fears that the persistent macroeconomic headwinds can eventually cause a recession in the U.S economy has also made the investors anxious, resulting in massive stock market sell-offs. The Bureau of Labor Statistics reported that the U.S. consumer price index rose 8.6% last month, the fastest increase since December 1981. However, consumer defensive stocks tend to remain resilient during such market uncertainties due to these companies' near-inelastic demand for products. According to Johnson, a certified financial planner and founder of Delancey Wealth Management in Washington, D.C., investors should consider shifting to consumer staples and utilities as the stock market tumbles.

CLX has declined 29% over the past year, while NWL plunged 31.5%. However, NWL’s 17.5% decline over the past month is significantly lower than CLX’s 22.2% decline. Also, in terms of year-to-date performance, NWL is the clear winner with a 14.3% decline versus CLX’s 29.4% decline.

But which stock is a better buy now? Let’s find out.

Latest Developments

In April, CLX signed a 12-year, 47-megawatt virtual power purchase agreement (VPPA) with Enel Green Power North America to purchase renewable electricity beginning in 2023. This deal is backed by its commitment to 100% renewable electricity for its U.S. and Canada operations, one of CLX’s environmental, social, and governance goals to address climate change. This deal is expected to support about half of the renewable electricity needed to cover its U.S. and Canada operations as soon as it goes into effect.

In April, NWL announced the launch of the Newell Creative Kitchen, the company's first multi-purpose, brick-and-mortar kitchen area located in Hoboken, New Jersey. The versatile space serves virtual and in-person events and caters as a hub for content creation and kitchen inspiration, connecting people with the latest food and kitchen trends. Newell Creative Kitchen offers an avenue to present the latest innovations from Newell Brands' family of leading home and kitchen brands, including Rubbermaid, Ball, Calphalon, FoodSaver, Sistema, CrockPot, and Mr. Coffee.

Also, in April, NWL announced that it had completed the sale of the Connected Home & Security business (CH&S) to Resideo Technologies, Inc. (REZI) for a purchase price of $593 million, subject to customary working capital and transaction adjustments. The CH&S business, based in Aurora, Illinois, produces and distributes smoke and carbon monoxide combo alarms, fire suppressants, fireproof safes, and other home safety products under the BRK and First Alert brands.

Recent Financial Results

CLX’s net sales increased 1.6% year-over-year to $1.81 billion for the third quarter ending March 31, 2022. Its net income came in at $150.00 million compared to a net loss of $61.00 million in the previous period. However, its gross profit declined 16.1% from its year-ago value to $649.00 million. The company’s Non-GAAP EPS declined 19% year-over-year to $1.31.

NWL’s net sales increased 4.4% year-over-year to $2.39 billion for the first quarter ending March 31, 2022. Its operating income grew 13% from its year-ago value to $217.00 million, while its net income amounted to $234.00 million, up 162.9% from its prior-year quarter. The company’s EPS rose 161.9% year-over-year to $0.55.

Past and Expected Financial Performance

NWL’s revenue increased at a CAGR of 1% over the past three years. Analysts expect NWL’s revenue to increase 0.9% in the current quarter and 1.4% next year. The company’s EPS is expected to grow 4.9% in the current year and 9.9% next year. Moreover, its EPS is expected to grow at a rate of 4.6% per annum over the next five years.

On the other hand, CLX's revenue and EPS grew at a CAGR of 4.2%, and its EPS has shown a negative CAGR of 15.4%, respectively, over the past three years. Analysts expect the company’s revenue to increase 4% in the current quarter, to decline 2.3% in the current year, and increase 3.4% next year. The company’s EPS is expected to decline 2.1% in the current quarter, 43.3% in the current year, and is expected to increase 31.9% next year.

Profitability

NWL’s trailing-12-month revenue is 1.13 times what CLX generates. Furthermore, NWL is relatively more profitable, with a 35.80% gross profit margin compared to NWL’s 31.13%.

Furthermore, NWL’s net income margin and EBIT margin of 6.7%and 10.1% compare with CLX’s 6.4% and 9.1%, respectively.

Valuation

In terms of forward EV/Sales, CLX is currently trading at 2.65x, 108.7% higher than NWL, which is currently trading at 1.27x. CLX’s forward EV/EBITDA ratio of 19.15x is higher than NWL’s 8.57X.

POWR Ratings

CLX has an overall rating of C, which equates to Neutral in our proprietary POWR Ratings system. NWL, on the other hand, has an overall rating of B, which translates to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

NWL has a grade C for Sentiment, in sync with the company’s revenue and EPS estimates. CLX, on the other hand, has a grade of D for Sentiment. This is justified, as analysts expect the company’s EPS to decline at a rate of 5.3% per annum over the next five years.

Of the 63 stocks in the C-rated Home Improvement & Goods industry, NWL is ranked #14, while out of 61 stocks in the C-rated Consumer Goods industry, CLX is ranked #30.

Beyond what we’ve stated above, we have also rated both the stocks for Stability, Momentum, Value, Growth, and Quality. Click here to view NWL ratings. Get all CLX ratings here.

The Winner

The current market sell-off caused due to various macroeconomic factors has led many stocks to witness significant declines over the past few months. However, consumer defensive stocks tend to perform relatively well during an inflationary environment due to the near-inelastic demand for these products. Therefore, CLX and NWL are expected to perform steadily. However, NWL’s relatively lower valuation, strong profitability, and impressive financials make it a better bet now.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Home Improvement & Goods industry here. Also, click here to access all the top-rated stocks in the Consumer Goods industry.

CLX shares were trading at $122.57 per share on Thursday afternoon, down $0.56 (-0.45%). Year-to-date, CLX has declined -28.70%, versus a -22.56% rise in the benchmark S&P 500 index during the same period.

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.

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