WD-40 Company Misses Earnings and Revenue Estimates; Shares Down 12.7%
Stock Analysis & Ideas

WD-40 Company Misses Earnings and Revenue Estimates; Shares Down 12.7%

Story Highlights

One of the slipperiest products around is produced by a company known for its stability. However, after WD-40’s latest earnings report, its share price isn’t showing much stability.

WD-40 (WDFC) is a product so ubiquitous you’ll find it in nearly every home on the planet. This highly portable and highly versatile lubricant is an essential item for homeowners wanting to address everything from stuck doors to balky drawers.

Its recent earnings report, however, suggests that the company is having some serious trouble. Trouble sufficient, in fact, to send the company down 12.7% so far today.

Meanwhile, I’m neutral on WD-40. The product is highly useful, but as most people’s dads likely told them in terms of how to use the stuff, a little goes a long way. The company is already highly valued and shows little signs of explosive potential growth. There’s value here, but potential investors may want to let the stock drop further before getting in.

The latest news for WD-40 isn’t helping the company. Its most recent earnings report emerged and offered up earnings of $1.07 per share. That’s significantly short of the consensus projections calling for $1.27.

Revenue also missed expectations, coming in at $123.67 million against the $142.8 million projected. The biggest causes of the shortfall were the overall economic downturn as well as supply disruptions.

The last 12 months for WD-40 have been down somewhat. Back in July 2021, the company lost ground and settled into a plateau of around $230 per share. There were some declines, but these were quickly reversed, and the company reverted to the mean – around $230.

That held until mid-January 2022, which is when the company started a plunge past $200 per share. A recovery kicked in, but, as the latest developments showed, it didn’t hold.

Wall Street’s Take on WD-40

Turning to Wall Street, WD-40 has a Hold consensus rating. That’s based on two Holds assigned in the past three months. The average WD-40 price target of $192 implies 7.3% upside potential.

Since only two analysts are providing coverage of WD-40, and they have the same price target of $192 per share, the average serves as both the high and the low target as well.

Investor Sentiment is Tepid but Improving

WD-40’s position in the market seems fairly secure. Though the price is dropping somewhat, investor sentiment doesn’t seem to be going along for the ride. Currently, WD-40 stock has a Smart Score of 4 out of 10 on TipRanks, which is the lowest level of neutral. This makes it slightly more likely to underperform against the broader market, but only slightly.

Hedge funds, for their part, seem unconcerned by the earnings reports. In fact, based on the results of the TipRanks 13-F Tracker, hedge funds bought an additional 8,800 shares last quarter. Hedge funds have never been particularly fervent about WD-40 ownership. However, this is actually the highest point for share ownership when looking back since June 2020.

Meanwhile, insider trading in WD-40 has been slow, at best. What we’ve seen of it is pretty heavily Buy-weighted. The most recent insider transaction recorded in the last six months was a Buy in February. As for the year itself, Buy transactions led Sell transactions by 20 to 14.

Retail investors—at least those who hold portfolios on TipRanks—are a bit more skeptical, but they’re coming back, at least somewhat. In the last seven days, the number of TipRanks portfolios that held WD-40 stock was up 0.5% but down 1.7% over the last 30 days.

The real shining star for WD-40, however, is its dividend history. The company has held a steady and steadily appreciating dividend for most of the last three years. That includes the pandemic.

The raises offered aren’t mere token raises, either; between September 2021 and December 2021, the company raised its dividend from $0.72 to $0.78, where it sits today. Based on past performance, another increase will likely come with the next quarter.

Stability Above All, Most of the Time

The real appeal for WD-40, almost certainly, is for income investors. The company’s share price has been comparatively stable for some time now – at least until its earnings report came out and produced some significant misses against projections.

There may be some help coming, however, in the form of a new chief financial officer. Just two days ago, WD-40 brought in a new CFO, Sara Hyzer, who will also serve as vice president of finance and the company’s treasurer. Hyzer will take over for Jay Rembolt, who is set to retire after a short stint as a strategic adviser.

That’s still not much in the way of news in any direction. Just a week ago, Investor’s Business Daily pointed out that the company’s Relative Strength Rating had increased, with investors potentially seeing the company as a safe haven with inflation and market volatility still on a runaway track. However, the recent declines suggest that’s not entirely the case.

Stability at WD-40 was important until today’s figures came in. In fact, if you completely discount today’s results, WD-40 would still be remarkable for its sheer stability.

Despite all the economic issues seen in 2022, the company lost only about 25% of its total value. That’s not nearly as bad as some we’ve seen, but throwing today’s numbers so far into the mix will challenge the year’s lows seen back in April.

WD-40 recovered from lows once; between April and June, the company added close to 22% to its total value. This suggests that it can recover once more. However, given the comparatively small difference between its highs and lows, getting in might not be a good plan.

Concluding Views – Stable, but Low Growth Potential

WD-40 is a comparatively stable operation, as evidenced by relatively low volatility. Its dividend history makes it a pretty positive play for income investors, and the fact that WD-40’s household goods lineup is resistant to recessions doesn’t hurt either.

However, with WDFC’s share price being as high as it is and a comparative lack of any serious new developments coming down the product pipeline, buying in may not be a good plan.

That’s why I’m neutral on WD-40. Shares are expensive, and there doesn’t look to be a lot of growth potential here. Even the two analysts the company has following it aren’t looking for much to come out of WD-40.

If you already have shares, by all means, keeping them isn’t a bad idea, most likely. The company’s product line is too widely-used to put it at much risk from a potential recession.

However, expecting much movement in any direction out of this company is likely a bridge too far. Income investors should find that a welcome development, even if $178 or so is a bit much to pay for a $0.78 dividend per quarter.


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