Clorox is a buy as coronavirus changes disinfecting habits for the long term, DA Davidson says
(This story is for CNBC Pro subscribers only.) People are going to stick to their sanitizing practices even after Covid-19 is a thing of the past, paving the way for more outperformance from Clorox , according to DA Davidson. The Wall Street firm initiated coverage of the maker of bleach and disinfecting wipes with a buy rating and a $256 per share price target, the highest on Wall Street, according to FactSet. The call sent the stock up 0.5% on Tuesday to a new 52-week high. DA Davidson's target implies a 17% rally from its current $218 share price. "We think CLX's outperformance can continue - indications are that heightened awareness of the role of disinfecting in public health may be more lasting than following past global health crises," DA Davidson Senior Research Analyst Linda Weiser said in a note to clients. Shares of Clorox have rallied more than 40% this year as consumers turned to the consumer staples giant's products for preventative measures against the spreading deadly virus. Clorox's disinfecting wipes account for about 25% of U.S. sales and 30% of global sales and the firm expects this to continue to grow. DA Davidson said it is bullish on Clorox because the adoption of sanitizing is here to stay, even in a post-Covid world. "Habits around disinfecting could be changing for the long term," said Weiser. "The majority of the higher demand for disinfecting products is coming from incremental household penetration, not just stockpiling or higher use by existing households." Even before the pandemic, Clorox's fundamentals were improving, said Weiser. After three consecutive quarters of no growth, the company reached positive organic growth in the first half of 2020. Weiser said she does not expect Clorox's sales to decline in the high-single digits in the first half of 2021 like the consensus is projecting. "CLX has an opportunity to increase household penetration of wipes, for example, to beyond the current 50%," she added. DA Davidson is among the minority of bullish Wall Street firms on Clorox. Of the 15 analysts that cover the stock, only 4 analysts have a buy rating, according to FactSet. Seven analysts have a hold rating and four analysts recommend selling the stock. DA Davidson's price target is based on a 34-times 2021 earnings of $7.54 per share multiple. — with reporting from CNBC's Michael Bloom.

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