1、North America Equity Research16 July 2019Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($mn)Price($)CurPrevCurEnd DatePrevEnd DateChurch&DwightCHD US18,902.8175.28Nn/c71.00Dec-19n/cn/cCloroxCLX US20,651.07158.53UWn/c132.00Dec-19n/cn/cColgate-Palmolive CoCL US63,876.8074.00Nn/
2、c72.00Dec-1970.00n/cCoty IncCOTY US8,375.8311.11Nn/c11.00Dec-19n/cn/ce.l.f.Beauty IncELF US765.0016.62OWn/c17.00Dec-19n/cn/cEnergizer HoldingsENR US2,731.0340.58UWn/c36.00Dec-19n/cn/cKimberly Clark CorpKMB US48,180.50139.25OWn/c151.00Dec-19143.00n/cNewell Brands IncNWL US6,408.4515.15Nn/c18.00Dec-19
3、n/cn/cThe Estee Lauder CosEL US68,978.91187.29OWn/c193.00Dec-19n/cn/cThe Procter&Gamble CompanyPG US304,601.60115.48OWn/c124.00Dec-19118.00n/cSource:Company data,Bloomberg,J.P.Morgan estimates.n/c=no change.All prices as of 15 Jul 19.Household&Personal Care Products2Q19 Preview:Solid Fundamentals bu
4、t Are Investor Expectations Frothy?Key Calls into EarningsBeverage,Household&Personal Care ProductsAndrea Teixeira,CFA AC(1-212)622-Bloomberg JPMA TEIXEIRA Christina Brathwaite,CFA(1-212)622-Peter K Grom(1-212)622-J.P.Morgan Securities LLCSee page 48 for analyst certification and important disclosur
5、es.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making thei
6、r investment decision.Overall our US HPC coverage universe traded well since the start of CY2Q(+10.4%on a market cap-weighted basis vs.SPX 5.0%)as the setup remains favorable withimproved fundamentals on the back of price increases across the majority of the spaceand lower commodities costs.Valuatio
7、ns were further propelled by top-down factors as the sector is high quality and behaves as a bond proxy(high FCF and dividend yields).We agree that the overall fundamental strength seems real,with solid organic sales growth trends driven by pricing that is also benefitting margins,while a benign bac
8、kdrop for costs should provide incremental profitability support.That said,our US HPC coverage is now trading at a 25%premium to the SPX,which is 7%pts higher than its premium over the last five years,indicating that investor expectations are quite high,in our view,particularly for multinational com
9、panies.Given this backdrop,we favor names that combine positive top-line momentum and potential savings catalysts(like OW-rated PG,KMB,and ELF),while we encourage investors to avoid companies that are currently struggling to maintain traction with consumers in key categories(UW-rated CLX,ENR,and N-r
10、ated CHD).Please see below for our high-level thoughts on each of our companies into the print and click through to the full report for a more detailed 2-3 page section on each of the 10 companies in this report.Positive Set-Ups into the Print:Kimberly Clark KMB,Overweight.We see KMB as the best com
11、modity play within our coverage universe given significant global pulp deflation,which should benefit 2H19/1H20,plus top-line momentum as consumers generally accept price increases.KMB is also the cheapest MNC in our coverage universe,despite the recent rerating across the space,which bodes well for
12、 further appreciation in our view.Procter&Gamble PG,Overweight.Continued top-line momentum across 8 out of 10 categories,which can be sustained even lapping some pricing increases in November 2019.We expect initial guidance for FY20 to be conservative,yet embed a healthy 3-4%organic growth.As curren
13、t future prices for currencies and commodities indicate,we anticipate FY20 will have less than the$1.4bn headwinds FX and commodities in FY19 to support further margin and EPS expansion.Also,new corporate organization effective July 1st should improve the speed to market of innovation and on-the-gro
14、und execution in key international markets.2North America Equity Research16 July 2019Andrea Teixeira,CFA(1-212)622- e.l.f.Beauty-ELF,Overweight.Nielsen data continue to accelerate and point to opportunity for a significant top-line beat to managements initial guidance.We believe the sales upside can
15、 more than offset pressure from the 25%Chinese tariff implementation and are above FY20 guidance at$0.50,as described in more detailin our upgrade notehere.Newell Brands NWL,Neutral.We see a positive setup for NWL shares into the 2Q print as we believe the company once again guided 2Q19 margins cons
16、ervatively,as new management works to regain credibility with the investment community.While the step-up of Chinese tariffs was a headwind to NWLs gross margin during the quarter,we believe guidance embedded the implementation and that the company can offset the majority of pressure through continue
17、d SG&A cuts and some price increases.Balanced Near-Term Risk/Reward:Estee Lauder Companies EL,Overweight.EL likely reports another top-line andEPS beat driven by continued strength in China and Travel Retail;however,management likely continues its conservative stance on guidance noting EL initially
18、guided organic sales+5-6%for FY18 and FY19 but ended each year with organic sales+LDDs.Given managements historically conservative stance,investors may look past weak guidance;however,given ELs current premium multiple(30 x CY20E EPS),we believe near-term stock upside on an EPS beat may be muted.Tha
19、t said,we continue to believe that EL provides a best-in-class top-line and EPS growth opportunity and like the stock longer term.Coty COTY,Neutral.We believe that 4QFY19 earnings will likely be a non-event for COTY following its July 1 Turnaround Plan day at which it reiterated FY19 EPS guidance an
20、d issued preliminary FY20 guidance.While we remain skeptics on managements ability to quickly improve operations(see recap note here)and believe FY23 targets are optimistic,we believe shares likely remain range-bound for the next few quarters while investors give management the benefit of the doubt
21、on the turnaround.Downside Risk:Clorox CLX,Underweight.Nielsen data indicate that sell-through trends remained sluggish during the quarter,despite our promotional tracker indicating that CLX stepped up promotional activity sequentially.Given the risk that CLX will need to roll back price increases i
22、n trash bags,increased couponing,tariff headwinds,and limited commodity tailwinds,we see limited margin expansion opportunity for CLX in FY20 and believe that the company may guide below its+25-50bps LT annual expansion target.Energizer ENR,Underweight.Nielsen data indicate that trends for the acqui
23、red battery business remain down in the LDDs,which we believe will continue to pressure results.Simultaneously,while sell-through data indicate that trends for the organic battery business remained stable sequentially,managements+3-3.5%organic sales growth guidance for FY19 actually called for a 200
24、bps acceleration in 2H organic sales(despite 100bps more difficult sequential comparisons),which we believe may be at risk given trends.Church&Dwight CHD,Neutral.While we expect another strong quarter from CHD,we believe that trends may decelerate ahead given a more challenging competitive environme
25、nt in laundry detergent.With the stock currently trading 28x3North America Equity Research16 July 2019Andrea Teixeira,CFA(1-212)622-our 2020 EPS estimate,we believe that investor expectations are very high for the stock,leaving limited margin for error,which leads us to believe that the stocks risk/
26、reward is skewed towards the downside at these levels.Colgate CL,Neutral.We believe organic sales trends continued to improve for CL as the company rolled out the Total brand relaunch in additional countries,as well as benefitting from improved underlying consumption in Brazil and easy comps in the
27、country due to the truckers strike last year.That said,with shares trading at 24x our 2020 EPS estimate,we believe investor expectations are very high going into the print and investors may be expecting a beat and raise at this valuation level.While we agree that underlying fundamentals are likely s
28、olid,we see more downside risk than upside in the near term as management may still be cautious on 2H as:(1)it still remains to be seen if sales in China will stabilize;(2)there is a heightened competitive promotional environment in Brazil;and(3)CL is lapping its most difficult comparison of the yea
29、r during 4Q.We expect some more strategic commentary but limited financial disclosure given the small size and impact about the recent acquisition of luxury skin care Laboratoires Filorga Cosmtiques(link to note).4North America Equity Research16 July 2019Andrea Teixeira,CFA(1-212)622-Table of Conten
30、tsChurch&Dwight.5Clorox.9Colgate-Palmolive Co.13Coty Inc.17e.l.f.Beauty Inc.21Energizer Holdings.25Kimberly Clark Corp.30Newell Brands Inc.34The Estee Lauder Cos.38The Procter&Gamble Company.425North America Equity Research16 July 2019Andrea Teixeira,CFA(1-212)622-Church&DwightAnother Strong Quarter
31、 but Risk of Deceleration AheadWe believe 2Q will be another strong quarter for CHD with likely upside to EPS guidance of$0.52(JPMe$0.53/Street at$0.52).In the near term,we think that organic sales during the quarter beat guidance of 3.5%(JPMe 3.9%)driven by continued momentum domestically for the m
32、ajority of the quarter as well as strength internationally,while SPB likely remained weak.That said,we believe that the key focus for investors will be on CHDs top-line trajectory for the remainder of the year given the recent deceleration in Nielsen sell-through data,with$takeaway+2.3%in the 4 week
33、s ended 6/15/19 vs.+3.3%for the 12-week period ended the same date.The key driver of decelerating trends is weakness in the laundry category with liquid laundry detergent(28%of tracked channel sales)contracting-1.2%YOY during the latest 4-week period vs.+4.8%growth over the last year.Interestingly,p
34、ricing has been the key driver of CHDs recent decline in laundry(-5.8%on an equivalent unit basis)with market share only increasing slightly despite the price cuts.While lower detergent pricing may be quickly reversed,which should help top-line trends,we believe investors will likely be highly focus
35、ed on managements commentary about competition in the category as an indication for its trajectory.Table 1:CHDs Detergent Market Share Gains Only Improved Slightly Despite Price CutsLaundry Detergent Equivalent Unit Market ShareLatest 52-YOY Change in Market ShareWeek Share4-Week12-Week52-Week2018PR
36、OCTER&GAMBLE COMPANY,THE41.0%122 57(56)(11)CHURCH&DWIGHT COMPANY,INC.26.8%123 112 126 114 HENKEL KGAA24.0%(270)(216)(83)(95)PRIVATE LABEL3.4%22 30 13 8 FABRICA DE JABON LA CORONA SA1.9%(5)(0)0 0 Source:The Nielsen CompanyOur model embeds CHD beating 2Q EPS guidance by 1c,generating$0.53 in earnings
37、driven by top-line trends that are ahead of guidance,which drives incremental leverage on the companys fixed cost base.That said,despite the potential for a near-term beat,with CHD trading at 28x our 2020 EPS estimates vs.its 5-year historical average of 24.6x,we believe that investor expectations a
38、re extremely high for the company and see risk to shares on commentary that top-line trends will decelerate ahead(noting CHD faces 40bps more difficult comparisons in 2H than 1H).NeutralCHD,CHD USPrice:$75.28Price Target:$71.00United StatesBeverage,Household&Personal Care ProductsAndrea Teixeira,CFA
39、 AC(1-212)622-Bloomberg JPMA TEIXEIRA J.P.Morgan Securities LLCYTD1m3m12mAbs14.5%-2.0%1.9%37.1%Rel-5.7%-6.7%-1.8%29.4%45556575$Jul-18Oct-18Jan-19Apr-19Jul-19 Price PerformanceCHD share price($)S&P500(rebased)6North America Equity Research16 July 2019Andrea Teixeira,CFA(1-212)622-Table 2:JPM Slightly
40、 Ahead of Street on 2Q19 EPSJ.P.Morgan Estimates vs.Consensus;$s in Millions unless otherwise stated2Q192019Income StatementJPMeYOY%ConsensusJPM vs ConsJPMeConsensusJPM vs ConsNet Sales$1,072 4.3%$1,073-0.1%$4,368$4,360 0.2%Gross Profit481 5.8%477 0.9%1,963 1,957 0.3%Operating Income186 7.1%183 1.9%
41、859 864-0.6%Interest,Net19-10.1%N/AN/A76 N/AN/ANet Income135 10.8%131 2.8%625 626-0.2%Shares Outstanding252.3 1.2%251.7 0.2%252.6 N/AN/AEPS$0.53 9.5%$0.52 2.6%$2.48$2.48-0.2%EBITDA$227 8.9%$222 1.9%$1,023$1,023 0.0%Growth/MarginsJPMeYOY(bps)ConsensusJPM vs ConsJPMeConsensusJPM vs ConsNet Sales YOY4.
42、3%NM6.7%(240)5.4%5.2%19 Organic Sales YOY3.9%NMN/AN/A3.6%N/AN/AGross Margin44.9%64 44.4%48 44.9%44.9%7 SG&A Margin27.5%18 27.4%12 25.3%25.1%23 EBIT Margin17.4%46 17.0%35 19.7%19.8%(16)Tax Rate20.6%(109)21.1%(54)21.0%21.3%(36)Source:Bloomberg&J.P.Morgan 7North America Equity Research16 July 2019Andre
43、a Teixeira,CFA(1-212)622-NeutralCompany DataShares O/S(mn)25152-week range($)79.22-53.15Market cap($mn)18,902.81Exchange rate 1.00Free float(%)99.8%3M-Avg daily vol(mn)1.303M-Avg daily val($mn)96.9Volatility(90 Day)17Index S&P 500BBG BUY|HOLD|SELL 5|15|3Church&Dwight Co.,Inc.(CHD;CHD US)Year-end Dec
44、($)FY17AFY18AFY19E(Prev)FY19E(Curr)FY20E(Prev)FY20E(Curr)FY21ERevenue($mn)3,7764,1464,3674,3684,5904,591-Gross margin 45.8%44.4%44.9%44.9%45.3%45.3%-EBITDA margin 23.9%22.5%23.4%23.4%23.9%23.9%-A income($mn)498569625625673674-Adj.EPS($)1.942.272.472.482.682.68-BBG EPS($)1.922.29-2.48-2.702.91Reporte
45、d EPS($)2.902.272.472.482.682.68-Dividend yield 1.0%1.2%1.2%1.2%1.3%1.3%-Adj.P/E 38.733.230.430.428.128.1-EV/EBITDA 23.322.219.920.218.418.8-Source:Company data,Bloomberg,J.P.Morgan estimates.Investment Thesis,Valuation and RisksChurch&Dwight Co.,Inc.(Neutral;Price Target:$71.00)Investment Thesis In
46、 our view,the risk/reward profile of CHD is relatively balanced.We see the main positives of the stock as(1)domestic focused,which we believe provides relative safety vs.multinationals,with 80%of sales generated in the US;(2)strong positioning in under-the-radar-categories such as vitamins and dry s
47、hampoo,as well as the value tier within laundry;(3)solid track record executing bolt-on M&A opportunities;and(4)high cash flow yield and conversion.That said,given the strength and consistency of its organic sales and earnings growth profile,CHD trades at a significant premium to both its HPC peers
48、and its historical forward multiple.While we are positive on the CHDs latest acquisition of Flawless and believe it will help continue driving CHDs growth outperformance to peers,with CHD trading at a 60%premium to M&A roll-up stories and 40%premium to HPC on 2020 EBITDA estimates(vs.50%and 34%premi
49、um on average over the last year,respectively),we believe the current valuation already embeds this outperformance.Given this premium,we believe multiple expansion will be relatively limited from here and driven primarily by earnings beats and/or continued M&A.ValuationOur Dec 2019 price target of$7
50、1 is based on a 17.8x EV/EBITDA multiple on our 2020 estimates.Our target multiple is derived by applying a 60%premium on the current 2019 M&A roll-up story peer multiple of 11.4x as CHD has traded at a 60%premium to these peers on average over the last year.Our peer group consists of CENTA(N rated,
