Wells Fargo Upgrading Church & Dwight

Wells Fargo is out with a research report on Church & Dwight Co.

and is upgrading to Outperform on valuation. It has a $40-$42 price target on shares. In a note to clients, Wells Fargo writes, "We are upgrading our rating on CHD shares to Outperform from Market Perform given 10-15% upside potential to our $40-42 valuation range including the current 1.8% dividend yield. We believe solid organic growth prospects exist driven by (1) new products led by the company's power brands, (2) domestic distribution penetration, and (3) solid international growth. The company's slate of value products should provide support to organic sales if the domestic economy continues to be weak. Long-term gross margin prospects remain strong. Solid free cash flow generation (current 7.0% yield) should provide management with the opportunity for additional dividend increases. Organic cash flow plus low leverage gives the company plenty of ammunition for targeted $20-100MM revenue sized acquisitions that can be material to financial results, in our view. Our Outperform rating is based on multiples near the midpoint of historical forward ranges given (1) solid organic growth prospects, (2) long-term margin prospects, (3) strong free cash flow, and (4) the ability to make accretive acquisitions. Fine-tuning our 2012E EPS to $2.40 from $2.41. Our $40-42 valuation range reflects multiples collectively near the mid-point of historical forward P/E and EV/EBITDA ranges." Shares of CHD closed at $37.01 yesterday.