The action in Clorox (CLX) today, and for the week, has been nuts, but for those buying this name because of the coronavirus and a rising demand for hand sanitizers along with disinfectants, I have to ask why? I do believe we'll see demand, but we're talking about a company with revenue of $1.45 billion last quarter. Will this potential demand really move the needle? And will it last beyond a quarter or two?
Those are the questions you need to answer before buying or considering this name. For me, the answer is no. With the action in the market today it seems Wall Street agrees. Clorox did turn in a strong second quarter with revenue of $1.45 billion and earnings per share hitting $1.46, which was $0.15 ahead of estimates. Management then guided sales basically flat for the second half of the year. They also updated full-year guidance to a range of $6.10 to $6.25 versus estimates of $6.14. If we factor in the $0.15 beat for Q2, this paints a rather lackluster picture of the second half of the year. Basically, the combination of Q3 and Q4 will come up short of expectations by $0.04 to $0.19. That's not a pretty picture. While a boost in the current quarter sales of sanitizers may help the bottom line a little, that shortfall will require more than a little help.
If you're buying Clorox, you aren't buying growth. You're buying a 2.6% yield along with some stability, but it's not what I would choose to play the coronavirus. We already know that is going to be a high-risk gamble, so as a trader you want to be justly compensated with a high reward potential. Clorox doesn't offer that trade-off.
The action today could be devastating for the strong momentum bulls carried since Thanksgiving. Support of $168 and $164 were sliced like a hot knife through butter. The next area, a very long-trending support line, comes into play at $159. Should bulls recover the $159 to $160 area by close of trade Friday, then a short-term bounce should be in play early next week. It only offers a couple dollar upside, but with a clear stop on the 50-day simple moving average (SMA) at $158, it isn't a horrible risk-reward short-term trading. Unfortunately, the longer-term isn't as optimistic looking as we see the Full Stochastics indicator breaking down and multiple resistance levels now formed against Clorox.
Investors and traders want to define a clear time frame here if getting involved in Clorox along with a clear reason. If that reason is you see this name as a huge winner from the coronavirus, then I'd only take a defined risk trade (i.e., a call or call spread), but if that's the case, then I'd encourage you to try and estimate the amount of market cap it could add to a $21 billion company with $6 billion in sales and no growth. With how much the markets have declined over the past two weeks, I see far better plays out there than Clorox. Other than a one to two day trade next week if this closes over $160 today, I have no interest in owning the name.
(Clorox is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CLX? Learn more now.)
