Church & Dwight Co., Inc. (CHD): Should Investors Follow Insiders Into This Consumer Giant?

Compared to its bigger peers including The Clorox Company (NYSE:CLX) and The Procter & Gamble Company (NYSE:PG), Church & Dwight Co., Inc. (NYSE:CHD) has the highest EBITDA multiple. Clorox is trading at $83.80 per share, with the total market cap of $11 billion. The market values Clorox at a much lower valuation, at 18.10 times its forward earnings.

Clorox also owns a lot of global leading brands. The company reported that around 90% of its brand portfolio ranks either #1 or #2 in the global market share. The two biggest categories are cleaning and household, with each accounting for 31% of its total 2012 sales. For the full year 2013, Clorox expects to grow its top line by 3%-4%, while its earnings are estimated to come in at the range of $4.25 to $4.35 per share.

P&G has the similar earnings valuation to Clorox. At $78.30 per share, P&G is worth nearly $124.7 billion on the market. The market values P&G at around 18.09 times its forward earnings. P&G is the global leader in consumer good industry with a lot of global market leading brands including Gillette, Ariel, Pantene and Pampers. Most of its operating revenue, around 63% of the total revenue, is derived from the developed markets.

In the future, the company expected to expand its business footprint in the fast growing emerging markets. The company has been undergoing a $10 billion cost cutting program, including $2 billion in overhead savings and marketing efficiencies, $2 billion in operating leverage and $6 billion in COGS savings.

Activist investor Bill Ackman, via his fund Pershing Square, is one of P&G largest shareholders. He thought that with an organic sales growth of 6% and EBIT (earnings before interest and taxes) margin of 4%, its earnings would be $6 per share in the next three years. With the P/E multiple of 20, P&G should be worth $125 per share.

My Foolish take

With their global market leading positions, all of the above-mentioned consumer good companies are worth being in long-term investors’ portfolios. Among the three, I like P&G the most because it had the relatively reasonable valuation compared to the other two companies. Moreover, with a potential $10 billion cost savings program, P&G might experience significant improvement in operating margin, driving up its EPS and eventually the company’s share price.

The article Should Investors Follow Insiders Into This Consumer Giant? originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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