Why Is Carl Icahn Interested In Clorox? (CLX)
Carl Icahn disclosed a stake in Clorox (NNYSE: CLX), saying shares are undervalued, but why Clorox of all companies?
Clorox is best known for its innovative brands that are number one in their respective categories, such as Clorox Bleach, Formula 409, Liquid-Plumr, Pine-Sol, S.O.S, Tilex, Green Works, Armor All, and STP brands.
Icahn is obviously in the name because he sees tremendous value, as does the company itself. It intends to buy back 10-11 million shares of the company by the end of the 2011 fiscal year. Consumer product companies like Clorox, Procter & Gamble (NYSE: PG) and Johnson & Johnson (NYSE: JNJ) are undervalued by the market right now, and there is probably 20% upside to these names, according to David Darst, CFA of Morgan Stanley (NYSE: MS).
Darst said to buy "global gorillas" at the Harbor Investment Conference, on the basis that they are too undervalued.
Darst also went on to describe the major global companies, like Procter & Gamble (NYSE: PG), Johnson & Johnson (NYSE: JNJ), Coca-Cola (NYSE: KO), GlaxoSmithKline plc (NYSE: GSK) as "global gorillas", which he believes are under owned.
The stock isn't that cheap at 16 times 2011 earnings, especially compared to its competitors, but Icahn believes that he can extract value out of the name, either by selling to a much larger competitor, or selling off brands and returning cash to shareholders. At around $10 billion in market cap, it's not too big to be taken out by a company looking to expand its product portfolio. A company like Unilever (NYSE: UL), Colgate-Palmolive (NYSE: CL) or Kimberly Clark (NYSE: KMB) could easily take over Clorox.
Let's wait and see what Mr. Icahn has up his sleeve. We'll all be watching.
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