Apple: Still cheaper than Clorox

Apple’s PE ratio is up more than 7% this year. Clorox is down 14%. Apple still trails.

In a Mad Money rant three weeks ago, CNBC’s Jim Cramer made the case for valuing Apple not as just another FANG, but as one of the great consumer products companies of all time—alongside Proctor & Gamble, Pepsi and Colgate.

Cramer is particularly fond of Clorox, a company with a long (41 year) history of dividend increases and a $3 billion stock buyback program. At week’s end it was trading at a price-to-earnings ratio of 23.6, just below the S&P 500 average (24.7).

Apple’s PE is on the rise—buoyed by strong earnings and a massive ($100 billion) stock buyback—and last week reached its high for the year: 19.7.

Cue the fever charts (year to date):

PE Ratios: 

clorox

PE Ratio Growth:

clorox

Click to enlarge.

My take: This is crazy. Apple has mountains of cash, a history of disruptive innovation and Services revenues that are growing at 30% a year. Can Clorox say that about any of its business units?

4 Comments

  1. Fred Stein said:

    Let’s call it; “Sceptic Discount”. For well over five years, AAPL has traded below almost every financial metric. For all that time, shallow (or callously manipulative) stories have scared investors.

    Finally, investors have discovered high school. Maybe they took remedial classes during summer break. Reductio ad Absurdum: One could borrow $1.04T at 3% to buyback the entire company and earn over $20B (and rising) after interest payments.

    Or.. Look at buybacks as a forced DRIP of over 5% (a lot higher recently). Adding the actual payout and you have a 6.5% yield and rising.

    Or… Dividends will double about every six years. Chill.

    2
    August 19, 2018
  2. Robert Paul Leitao said:

    In my view, the price-earnings multiple is an overused metric that is only relevant when comparing enterprises in the same or very similar industries. This certainly doesn’t apply when comparing Apple and Clorox.

    Let’s use a different metric – market cap – to compare the two enterprises. At present Apple is valued at 56 times the value of Clorox. Apple’s market cap is just over $1 trillion versus just under $19 billion for Clorox. There’s really no valid comparison in the valuation of the two enterprises.

    By and large analysts are not bullish on Clorox and the current share price is well above the Street’s consensus price target. On average, Clorox is rated as a hold and is mostly considered overvalued. The current dividend yield is 2.73%. I wouldn’t buy it. But some dividend investors seeking a diversified portfolio might be interested in the equity due to dividend stability.

    At Friday’s closing price, if Apple had a similar dividend yield of 2.73%, the annual payout would be nearly $6 per share or roughly double the current dividend payout. Clorox trades on the dividend payout while Apple continues to trade based on the company’s prospects for net income growth amplified by the impact of the massive share repurchase program on earnings per share. Apple’s dividend payout may eventually reach $6 per share, but the underlying growth story is far more compelling than the company’s dividend yield at this time.

    Mr. Cramer’s point is that if Apple were valued as a consumer products enterprise rather than a technology enterprise the earnings multiple would be higher. That’s quite possible. But Clorox isn’t the best example because it trades primarily as a dividend play. P&G might be a better choice for comparison. But its dividend yields 3.48% at Friday’s closing price. In the case of P&G, the dividend yield also influences the valuation and earnings multiple.

    Mr. Cramer may have a point, but Clorox is certainly not the best example for comparison purposes.

    2
    August 19, 2018
    • Mark Visnic said:

      Robert, I agree that dividend yield is a factor impelling the Clorox and PG multiples but, their multiples also are as high as they are notwithstanding low growth prospects because of the high degree of visibility and reliability their recurring revenue streams have provided to investors.
      As it becomes clearer to the consensus that Apple’s revenue stream is recurring and similarly visible, predictable, and reliable, I expect its multiple to continue to expand. I look optimistically and conservatively to a 21-23 trailing multiple in the next 18-24 months.

      1
      August 20, 2018
  3. Gregg Thurman said:

    “In my view, the price-earnings multiple is an overused metric that is only relevant when comparing enterprises in the same or very similar industries.”

    Exactly. Price to earnings is a comparison metric that is unsuitable for deterring value. PE ratios are neither good nor bad, neither too high or too low.

    PE numbers are the result of investors sentiment for an equity, a sentiment that IS the result of WS commentary. That dependency assumes that WS has no agendas and/or know what it is talking about, both factors that are suspect with high flyers like AAPL.

    All to often we see commentary about Apple/AAPL, emanating from WS, that is way off the mark, WAY off the mark, which gives rise to questions of knowledge and motive about WS’s commentary

    2
    August 19, 2018

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