What we’re looking for
The graphs you’re about to see tell Church & Dwight Co., Inc. (NYSE:CHD)’s story, and we’ll be grading the quality of that story in several ways:
Growth: Are profits, margins, and free cash flow all increasing?
Valuation: Is share price growing in line with earnings per share?
Opportunities: Is return on equity increasing while debt to equity declines?
Dividends: Are dividends consistently growing in a sustainable way?
What the numbers tell you
Now, let’s take a look at Church & Dwight Co., Inc. (NYSE:CHD)’s key statistics:
CHD Total Return Price data by YCharts
| Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Revenue growth > 30% | 16.9% | Fail |
| Improving profit margin | 18.5% | Pass |
| Free cash flow growth > Net income growth | 60% vs. 38.6% | Pass |
| Improving EPS | 40.2% | Pass |
| Stock growth (+ 15%) < EPS growth | 99.5% vs. 40.2% | Fail |
Source: YCharts.
*Period begins at end of Q1 2010.
CHD Return on Equity data by YCharts
| Passing Criteria | 3-Year* Change | Grade |
|---|---|---|
| Improving return on equity | 4.3% | Pass |
| Declining debt to equity | (7.9%) | Pass |
| Dividend growth > 25% | 300% | Pass |
| Free cash flow payout ratio < 50% | 33.7% | Pass |
Source: YCharts.
*Period begins at end of Q1 2010.
How we got here and where we’re going
Church & Dwight Co., Inc. (NYSE:CHD) got off to a hot start, but it was tripped up primarily by merely average revenue growth. That isn’t enough to call this stock stale, as C&D still earned seven out of nine possible passing grades regardless, and it has a very good chance to gain a perfect score next time around provided valuations and fundamentals come closer together. How might Church & Dwight Co., Inc. (NYSE:CHD) push its revenue even higher over the next few quarters?
Over the last four years, thanks to an effective marketing campaign surrounding what are in many cases less-familiar brands (excepting Arm & Hammer), Church & Dwight Co., Inc. (NYSE:CHD)’s new products have contributed more than over half of its new organic revenue since 2009. Going forward, C&D will also continue to exploit its flagship Arm & Hammer brand to the fullest.
The company anticipates cash flow of $456.5 million this year, which would be good for an 11% growth rate from the trailing 12 months (but barely ahead of 2012’s $449.1 million tally). As domestic household products account for the majority of revenues there’s a lot of room for international growth — overseas sales currently account for about 20% of revenues.
Last year, C&D bought Avid Health, which makes popular gummy vitamins (if anyone were to get vitamin poisoning, this would be a good excuse), for $650 million. That’s a bit of a divergence for C&D, but one can certainly see the appeal in such a niche. Last quarter, Avid made up 5% of C&D’s EPS. If this trend holds true, Avid’s purchase P/E was somewhere around 36, since 5% of C&D’s trailing 12-month earnings are in the neighborhood of $18 million. The company must be expecting big things out of little gummies. Mmm, gummies.
Putting the pieces together
Today, Church & Dwight Co., Inc. (NYSE:CHD) has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy — or to stay away from a stock that’s going nowhere.
The article Is Church & Dwight Destined for Greatness? originally appeared on Fool.com and is written by Alex Planes.
Fool contributor Alex Planes and The Motley Fool have no position in any of the stocks mentioned.
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