Morgan Stanley Upgrades Church & Dwight Co. Inc. (CHD) to Overweight, 'Fundamental Inflection Ahead Should Drive a Stock Recovery'

Morgan Stanley analyst Dara Mohsenian upgraded Church & Dwight Co. Inc. (NYSE: CHD) from Equalweight to Overweight with a price target of $91.00 (from $82.00).

The analyst comments "CHD's stock significantly lagged in 2022, dropping by 21% y/y, including a striking and modern-day record 2,000 bps of underperformance vs PG/CL/KO/PEP (in sharp contrast to 1,000 bps of annual avg. outperformance in the prior 20 years), offering a compelling entry point here ahead of an expected above-consensus topline and gross margin (GM) recovery. While underperformance was reasonable in our minds (we were UW until 10/17/22) on weaker-than-expected (and vs peers) 2022 topline and EPS results, driven by supply chain challenges, sharp declines in discretionary categories (~10% of sales) exacerbated by retailer inventory reductions, and post-Covid normalization in the vitamin category (~10% of sales), we now expect a sharp fundamental turn in 2023 to above-consensus organic sales and GM results. We see consensus EPS as now reasonable for 2023 even with assumed SG&A reinvestment, with likely potential room for upside later in H2. CHD's topline growth should reaccelerate in 2023 amid continued momentum in the core business as reflected in scanner data, and moderating headwinds in problem areas Waterpik, Flawless, and vitamins, with robust 2H23 organic sales growth of 6.4%, +730 bps above expected CHD 2022 performance but also +90 bps ahead of peers PG/CL as CHD cycles the worst of the 2022 headwinds mentioned above. CHD should also benefit in 2023 from higher marketing, more normalized promotion, and a supply chain recovery. In addition, we see GM upside to consensus as likely to emerge in Q2, which is more industry driven, but is more impactful for CHD with its skew to US-based resin and lack of European cost exposure vs peers."

For an analyst ratings summary and ratings history on Church & Dwight Co. Inc. click here. For more ratings news on Church & Dwight Co. Inc. click here.

Shares of Church & Dwight Co. Inc. closed at $81.91 yesterday.

You May Also Be Interested In

• New Street Research Upgrades Micron Technology (MU) to Buy
• Adeia (ADEA) PT Raised to $50 at BWS Financial
• Piper Sandler Reiterates Overweight Rating on Estee Lauder (EL), 'F4Q26 Preview'