Morgan Stanley upgraded Clorox Company ( NYSE: CLX ) to an Equalweight rating after having the household products stock slotted at Underweight.
Analyst Dara Mohsenian and team like CLX as a positive earnings trade with clear EPS upside. The view is that Q1 gross margins may beat as the drag from higher input costs is more than offset by positive pricing. Clorox ( CLX ) is due to report earnings on November 1.
The firm also sees underlying U.S. scanner data and retailer inventory cuts as both coming in better than CLX guidance and consensus expectations. For the full year, MS expects unchanged EPS guidance despite Q1 upside given it is still early in the year and the commodity/FX/macro outlook is still volatile.
On valuation: "While clearly the market is already pricing in upside vs consensus and ultimate margin/EPS recovery, with CLX trading at 29.5x NTM EPS (using consensus) vs a 24x times L10Y multiple, we see this as now reasonable after stock underperformance, with CLX trading 21x NTM EPS if one used its peak pre COVID EPS, which granted make take years to recover."
Shares of CLX rose 0.55% in premarket trading on Monday to $132.01. Morgan Stanley assigned a price target of $130 to CLX vs. the 52-week trading range of $120.50 to $186.86.
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Clorox is tipped by Morgan Stanley to beat earnings expectations