As the old saying goes, never let a good crisis go to waste. Clorox (NYSE:CLX) was recently hit with a cyberattack, but I expect the company to get back to business as usual soon. I’m going full-on contrarian today, and I am bullish on CLX stock even if investors hate it and half a dozen analysts gave Clorox a Sell rating yesterday.
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That’s right – six different analysts from big banks like Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) either initiated or reiterated a Sell or equivalent rating on Clorox stock yesterday. Clorox, the seller of cleaning products and related household items, is clearly in the market’s doghouse now.
There’s a recent incident that may help to explain why Clorox is in the penalty box. Yet, even prior to that incident, consumer-defensive names have generally been out of favor. If the market rotators eventually rotate back into CLX stock, there could be a bounce-back of epic proportions in store.
Security Breach Wreaks Havoc on Clorox
For now, it looks like no amount of bleach can clean the spots on Clorox’s reputation in the wake of a highly-publicized security breach. This story actually goes back to September 18, when word got out about unauthorized activity on some of Clorox’s IT systems.
Reportedly, the cyberattack damaged parts of Clorox’s IT infrastructure, resulting in a wide-scale disruption in the company’s operations and, hence, issues with product availability. However, Clorox supposedly contained the cyberattack in September.
Indeed, by late September, the situation seemed to be improving quickly for Clorox. A Clorox spokesperson assured, “We are ramping up production and working to restock trade inventories.”
On the other hand, Clorox warned yesterday that the temporary stoppage of operations due to the security breach would have a significant financial impact on the company’s results for the first quarter of Fiscal Year 2024. In light of this, Clorox’s management now expects a 23% to 28% year-over-year decline in quarterly sales as well as adjusted earnings ranging from breakeven to a loss of $0.40 per share.
Clorox Actually Gets an Upgrade
Again, I would emphasize that the market was already rotating out of consumer-defensive names like Clorox before this cyberattack occurred. After all, even while Clorox pays a healthy 3.64% annual dividend yield, the risk-free rate for government bonds is 4% to 5%. Hence, Treasury bonds are the risk-off, high-yielding asset of choice in 2023.
Here’s how I read the situation. If and when bond yields come down, high-yielding defensive stocks like CLX should roar back. Market rotation goes both ways, right?
As for the cyberattack, seasoned investors have seen these crisis situations come and go, and they take advantage of the overreactions that accompany situations like this. Perhaps I’m not the only one who feels that this, too, shall pass, as a DA Davidson analyst recently bucked the trend and boldly upgraded Clorox shares from Neutral to Buy. The analyst also maintained the price target of $152 for CLX stock.
DA Davidson analyst Linda Bolton Weiser didn’t deny Clorox’s “crippling cyberattack.” However, she noted Clorox’s statement on Friday that all manufacturing sites are now operating. Moreover, the DA Davidson analysts believe that when Clorox quantifies the financial impacts of the security breach, uncertainty will be reduced, the shares could rally, and the sentiment should improve from here. I agree 100% and applaud the DA Davidson analysts for proposing an unpopular opinion.
Is Clorox Stock a Buy, According to Analysts?
On TipRanks, CLX comes in as a Moderate Sell based on one Buy, seven Holds, and seven Sell ratings assigned by analysts in the past three months. The average Clorox stock price target is $144.46, implying 16.8% upside potential.
Conclusion: Should You Consider Clorox Stock?
Clorox stock is down 6% today after already having been beaten into the ground. Has America stopped buying bleach and other cleaning products all of a sudden? Of course not. Clorox and other defensive names just happen to be out of favor at the moment, and a cyberattack has caused a temporary hiccup in Clorox’s financials.
This is exactly where contrarians can step in and take action. The market has, in my opinion, severely overreacted to Clorox’s current issues. Therefore, I believe that dip-buying investors should consider CLX stock while it’s still trading at an unusually low price.
