Why Clorox Stock Deserves a Second Look: A Contrarian's Case for December

The Setup: A Stock Beaten Down By Circumstances, Not Fundamentals

When you scan the market for opportunities, sometimes the most interesting plays look the worst on paper. Take Clorox (NYSE: CLX), a name synonymous with household cleaning products for decades. The stock has dropped nearly 60% from its previous highs—a slide that would make most investors hesitate without good reason. But what if that hesitation is based on temporary setbacks rather than permanent damage?

The pandemic should have been Clorox’s golden ticket. Demand for bleach and disinfectants exploded as consumers stockpiled cleaning supplies. The company ramped up production capacity to meet this surge. Then reality hit—not once, but multiple times.

The Perfect Storm That Wasn’t Permanent

Here’s where the story gets interesting. Clorox didn’t face just one headwind; it faced a sequence of challenges that any investor would understandably find concerning.

First came inflation. Like many manufacturers, the company’s profit margins got squeezed as input costs soared. That was manageable. Then, in 2023, a significant cyberattack disrupted operations and cost the company approximately $380 million—a meaningful hit to any balance sheet.

But the biggest operational challenge came more recently: the company modernized its enterprise resource planning (ERP) systems. While this sounds dry, these transitions are notoriously disruptive. The company had been running decades-old software, so the update was necessary. Think of it as a needed renovation that temporarily shuts down the business.

The cumulative effect? Revenue contracted, and earnings fell sharply. The damage looked severe.

The Recovery Signals That Change Everything

Here’s what most bears miss: the tide is turning. Revenue and profitability metrics have shown measurable improvement throughout 2024, marking a clear inflection point. But the real tell comes from one overlooked metric.

Clorox’s return on invested capital (ROIC) has surged back to 25%, matching pre-pandemic levels. For those unfamiliar with ROIC, think of it as a measure of how much profit the company generates for every dollar deployed into the business. A 25% ROIC isn’t just good—it’s exceptional and suggests the business model remains intact.

This recovery signals that Clorox’s competitive advantages—its brand portfolio, product innovation, and market positioning—haven’t eroded. The company owns not just the bleach category but a constellation of trusted household names: Liquid-Plumr, Pine-Sol, Fresh Step, Glad, Hidden Valley, Kingsford, Brita, and Burt’s Bees. These aren’t commodities; they command consumer loyalty and pricing power.

The Dividend: Safety With Upside

Clorox wears the crown of a Dividend King—50+ consecutive years of annual dividend increases. No company maintains that record without genuine staying power.

Given the stock’s recent struggles, the current dividend yield has climbed to nearly 5%, among its highest levels ever. This naturally raises a red flag: Is this a yield trap? Would the company eventually slash its dividend?

The numbers suggest otherwise. Analysts project earnings per share will grow substantially as the business normalizes post-ERP transition. The payout ratio sits at approximately 72% of forward earnings—sustainable given the company’s investment-grade credit rating and solid balance sheet. Management’s guidance of 3-5% annual sales growth, combined with that 25% ROIC, provides a runway for consistent dividend expansion.

Valuation: The Final Piece

Clorox trades at a price-to-earnings ratio below 15x—genuinely cheap when you consider the quality of the business and its earnings visibility. That valuation likely prices in all the recent misery.

This creates an asymmetric opportunity: An investor can collect a 5% dividend while the market gradually restores the company’s reputation. If management executes as expected, multiple expansion alone could drive meaningful capital appreciation.

The Bottom Line

Companies that have weathered genuine adversity and emerged stronger often deliver outsized returns. Clorox fits that profile. The operational challenges were real, but they were transitory—not symptomatic of a broken business model.

With a fortress balance sheet, a proven dividend track record, a competitive moat reflected in its ROIC, and a cheap entry valuation, the hesitation many investors feel may prove to be a gift rather than a warning. For income-focused investors with staying power, this looks like a compelling entry point heading into year-end.