Adding to the Short Bias list (CHD)
We are adding Church & Dwight to the Short Bias list. With the shares trading at 18x 2024 EV/EBITDA and 27.5x EPS, the valuation reflects its volume growth outperformance relative to the consumer staples sector, which is mostly experiencing declines. Church & Dwight’s revenue trends look to decelerate in future quarters. The company’s margins have recovered from the pandemic, supply chain challenges, and inflationary input costs. Future margin gains will have to be won with pricing overcoming a more challenged consumer spending environment. The Street has penciled in 2024 sales, margins, and EPS growth in line with the company’s long-term growth formula without considering the challenges next year.
We will look to gain more conviction in the company’s pricing power, competitive risk from private label, and organic growth prospects. The company’s valuation is full, reflecting the strength of many of its 14 power brands, lack of GLP-1 risk, current volume growth, future M&A potential, and margin comparisons. Our initial vetting points toward 2024 being "below formula" in contrast to the valuation.
Waiting for April (BUD)
Bump Williams Consulting has paused its weekly reporting on Bud Light sales because “there have been no notable deviations in the trends since the initial descent in April.” AB InBev recently announced that its Chief Marketing Officer, Benoit Garbe, will resign at the end of the year. The company is replacing Garbe with its Chief Commercial Officer. Garbe was not linked to Bud Light’s controversial marketing, but all the initiatives to recover the lost sales have been ineffective. Turning Bud Light around seems like an immense challenge for any marketing executive. Bulls would argue all they need is time. That argument ignores Bud Light’s annual share losses before the boycott.
