Barron’s on Ross Stores and Church & Dwight

Barron’s featured two of our Buy List stocks today. Here’s the first in an article about discount retailers and Ross Stores (ROST):

Before the pandemic, one knock against off-price retail stores was they didn’t have much of a digital presence, because shifting inventory and low prices made e-commerce less economical for the group. Then the stars aligned to put this theory to the test, as coronavirus pushed all retailers online. Yet the discounters appear stronger than ever.

In a time of economic uncertainty, consumers are more focused on value than ever, and that’s been great for off-price retailers like TJX Cos. (ticker: TJX), Ross Stores (ROST), and Burlington Stores (BURL).

While these stores weren’t essential, and thus had to close when lockdown measures were in place in many areas, Covid-19 doesn’t appear to have dented their mojo. As Placer.ai notes, these retailers were seeing robust traffic going into the crisis, and the plunge in discretionary spending in March means that discounters have their pick of merchandise from full-line rivals.

Barrons also discussed the upgrade Credit Suisse gave to Church & Dwight (CHD).

Church & Dwight stock is rising on Thursday, helped by an upgrade from Credit Suisse, which argues that the maker of household and personal products can shine during uncertain economic times, thanks to its value-oriented brands and strong cash position.

Analyst Kaumil Gajrawala boosted his rating on Church & Dwight (ticker: CHD) to Outperform from Neutral, with an $85 price target. He writes that the company’s “operating model is designed to thrive in this environment: a value-oriented portfolio with a clean balance sheet and favorable M&A prospects meets a history of stability through difficult periods.”

He writes that while the stock’s valuation may look high—Church & Dwight has rallied nearly 10% in 2020—investors would do well to remember that the company has the highest return on capital and asset efficiency in the sector, which deserves a premium. Moreover, the stock’s valuation, at around 27 times forward earnings, is at a decade low versus the S&P 500.

Gajrawala highlights the fact that some 37% of the company’s portfolio comes from value-priced brands, a higher proportion than peers. He said Church & Dwight has “driven most of its growth through volume rather than pricing, which should serve it well through an economic downturn.”

The company is a serial acquirer, so declines in valuations among potential targets create opportunities for it. And it has a strong balance sheet, making it capable of doing deals.

Posted by on June 19th, 2020 at 10:57 am


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.