Don’t Chase Church & Dwight Higher; Let The Price Come To You

Key Points

• Church & Dwight are rocketing higher on solid sales supported by pricing power. 
• The guidance is favorable to shareholders and may inspire new highs in the market. 
• The analysts have yet to speak out but could provide the boost this market needs to break through resistance. 

Shares of Church & Dwight NYSE: CHD are moving higher following the Q1 earnings release and guidance, but investors shouldn’t chase higher prices. As good as the results are, the stock may be capped at a critical resistance point it has already reached. That point is near $95, a point of resistance that has been tested before. 

And there are analysts to consider as well. The analysts rate the stock at Hold and have been raising their price targets in 2023, but the consensus assumes fair value at current levels. If that doesn’t change, the stock is unlikely to move significantly higher without another catalyst, but that is an opportunity.

A round of analysts' upgrades could lift the stock to new highs, and the Q1 earnings report could inspire them to do so. Investors looking into this stock should wait and see what the market does. 

In this case, 3 distinct possibilities include breaking to new highs, consolidating and breaking to new highs or pulling back to retest support. Regardless of the outcome, if this market moves higher, it will give another signal. Until then, Church & Dwight is outperforming expectations and showing pricing power. 

Church & Dwight Pop On Results And Outlook 

Church & Dwight had a good quarter with revenue of $1.43 billion, growing 10% YOY to outpace the Marketbeat consensus by almost 600 basis points. The gain was supported by growth in 2 of the 3 operating segments, with only Specialty Products Division posting a decline. Consumer Domestic led with the growth of 12.2%, while International grew by 7.5% and up on pricing increases.

Volume was flat for the quarter but viewed positively by management after several quarters of decline. Shifts in consumer habits, such as trading down to cheaper brands, are also helping sales. 

The increase in revenue and pricing helped drive a 90 basis point increase in the gross margin. That was offset somewhat by increased operating expenses but not enough to offset the top-line growth completely. The company reported $0.85 in adjusted EPS, up 2.4% compared to last year and well ahead of expectations. The adjusted EPS outpaced consensus by more than 1000 basis points, and margins are expected to expand again in Q2. 

The company raised its guidance for Q2 and the year and expects 6% to 7% growth with slower growth on the bottom line. The market-moving detail is that analysts expected earnings to be flat compared to last year. 

Church & Dwight: Not Much Value, Not Much Yield 

Church & Dwight is in fine shape, but the value and yield are not much, considering the limited upside potential. The stock trades about 31X its earnings consensus and yields only 1.15% compared to the broad market, which is much cheaper and pays more in yield. Others in the group, such as Proctor & Gamble NYSE: PG and Clorox NYSE: CLX, also trade at high multiples but produce much higher yields. Proctor & Gamble and Clorox also reported solid quarters and guidance. 

The chart is bullish, but the uptrend may have turned into a melt-up that has reached its peak. The market is showing resistance at critical levels that could keep it capped for the foreseeable future. Even if the market can get above the $97 to $98 level, it faces stiff resistance at the all-time high near $105.