By Morgan Stanley recently downgraded Church & Dwight (NYSE: CHD) from “Overweight” to “Equal-weight” while maintaining a price target of $110.
This downgrade signals growing concerns about the stock’s limited potential for future gains, as it currently trades near $105, leaving only about a 5% upside.
Analyst Dara Mohsenian cited the stock’s high valuation, trading at 28.6x the FY25 earnings per share estimate, and the lack of new catalysts for further growth.
Church & Dwight has enjoyed a period of outperformance, backed by a strong portfolio of well-known household brands like ARM & HAMMER™ and THERABREATH™.
However, according to Morgan Stanley, the stock now appears fairly valued, with fewer drivers to push it higher.
The company’s slowing online sales growth and decelerating US scanner data trends are adding to concerns about its future performance.
Church & Dwight Q2 report
The downgrade follows the company’s Q2 earnings report, which exceeded expectations.
Church & Dwight reported $1.51 billion in revenue, marking a 4.1% year-over-year increase.
Its non-GAAP earnings per share (EPS) came in at $0.93, surpassing analyst expectations by $0.09. Organic sales grew by 4.7%, driven by a 3.5% increase in volume and a 1.2% boost from product mix and pricing.
Despite these positive results, the company’s guidance for the rest of the year has raised concerns.
Church & Dwight lowered its full-year revenue growth expectations, now predicting organic sales growth of around 4%, down from the previous range of 4-5%.
This revision reflects weakening consumer spending, especially in June and July, when consumption growth slowed to 2%, compared to 4.5% in the earlier part of the year.
CHD stock: cracks in the armor
While Church & Dwight continues to perform well internationally—reporting 9.3% organic growth in its International Division—the US market, which contributes 90% of the company’s revenue, is facing challenges.
Slowing consumption growth, increased competition, and a tightening consumer environment suggest that maintaining current growth levels will be difficult.
Moreover, rising costs present an additional challenge. If the company is unable to offset these costs through price increases or efficiency improvements, its profit margins may come under pressure, further complicating its growth outlook.
Church & Dwight stock valuation concerns
Despite Church & Dwight’s solid fundamentals, its current valuation raises concerns.
The stock’s forward P/E ratio of around 28x is significantly higher than its peers in the consumer staples sector.
For comparison, industry giants like Procter & Gamble and Colgate-Palmolive trade at lower multiples, making Church & Dwight appear overvalued.
As investors assess the company’s future, the high valuation could limit further upside.
Without new growth catalysts, the stock may struggle to break through its current price ceiling of $110.
CHD stock technical analysis
Church & Dwight’s stock began 2022 trading above $100 but dropped below $70 by the year’s end. However, the stock started a steady uptrend in late 2022, reaching new all-time highs near $110 in June 2024.
Source: TradingView
Despite these highs, the stock has encountered strong resistance above $105, slowing its momentum without a significant pullback.
Given this, the stock may remain in a narrow trading range between $95 and $110 in the short to medium term, with neither bulls nor bears gaining control.
For investors, this suggests caution. It’s not advisable to take a new long position at current levels, and short-term traders should also avoid shorting the stock.
A fresh long position should only be considered if the stock manages to close above $111 on a daily basis.
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