Morgan Stanley Likes Clorox and Church & Dwight Based On Household Products Stance

By Sam Boughedda

Morgan Stanley upgraded Clorox (NYSE:) and Church & Dwight (NYSE:) From Underweight to Equal Weight in a note Monday while downgrading Edgewell Personal Care Company (NYSE:) to Underweight.

Analysts told investors in the wide-ranging note on consumer staples that they “expect strong Q3 EPS in beverages with pricing power/modest demand elasticity, with upside confirmed by PEP’s exceptional 16% org. sales growth.”

The analysts also lowered Edgewell’s price target to $36 from $40 per share.

“Our upgrades of CHD and CLX fit with our less selective household products stance, with: a) potential margin upside in FY23 as a spot commodity cost drop-off flows through with pricing mostly sticking, b) after pronounced stock underperformance, valuation looks reasonable with CHD/CLX underperforming staples peers by -1,800/-1,400 bps YTD vs EPC at +2,400 bps in the LTM, and c) both stocks’ US centric mix offers a defensive hedge in a difficult macro/FX environment,” wrote the analysts.

The Morgan Stanley (NYSE:) analysts also noted that Church & Dwight stock “could become more compelling” if the company’s management sets a conservative profit/EPS base for 2022, which did not occur with a topline guide down in September, or lowers expectations for 2023. They added that if investors perceive a safe EPS base, they believe the stock could start to recover some recent losses as investors look ahead.

“We like CLX and ELF as positive trades on the quarter with clear EPS upside, which we expect to continued LT at ELF,” confirmed the analysts. “We see EPC as a negative trade on weaker than expected FY23 guidance, and EL on lower FY guidance with COVID pressure continuing in China, FX pressure, and greater macro impacts.”

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