Clorox Stock – Carl Ichan Believes Stock Undervalued

Clorox Stock – Feb 11 2011

Carl Icahn’s announcement to the  Securities and Exchange Commission of his investment in Clorox stock boosted the stock over 9% in one day as Clorox set a new 52 week high of $72.43 before pulling back. Ichan said he likes Clorox’s “emphasis on ‘mega-trends'” and its portfolio of brands. He also said he supports the company’s plan to buy back 10  to 11 million shares by the end of this fiscal year. Ichan said that he believes Clorox is undervalued and he may speak with its directors.

Clorox Stock – Is It Undervalued?

So is Clorox stock “undervalued”? It’s true that it has popular names like Glad, Clorox Bleach, Fresh Step, Kingsford Charcoal, Hidden Valley dressing and KC Masterpiece barbecue sauce. But right now sales of cleaning and household products are being discounted as consumers remain bargain shopping, picking up no name brands at much lower prices.

As well Clorox’s announcement of the Burt’s Bees fiasco on Jan 3 2011 is another sign that the company has lots of tough slogging ahead.
On top of that, commodity costs are rising, especially on resin, a key component of Clorox’s packaging and containers. Clorox earlier this month said input costs were expected to rise $70 million this fiscal year alone and will put pressure on their products for price increases.

Here is what Ichan owns presently:  He is controlling 12.5 million Clorox shares, including 1 million common shares, which he bought on Thursday and Friday (Feb 10 and 11) at an average cost of $66.35. He is also holding 11.5 million shares underlying call options which expire late in 2012.  The average per share cost of the options was $22.23 and they are all in the money at prices between $61.17 and 66.26. If we assume exercise of those calls, that would make him Clorox’s largest holder.

Clorox Stock – New Trading Range?

With Icahn’s announcement, Clorox stock may be entering a new trading range. The prudent thing will be to wait and see what develops, however I doubt the stock will fall much below $65.00 over the next few months as investors hold their shares in anticipation of higher valuations.

Clorox Stock - Feb 11 2011

For me I am pleased with his announcement as he has placed all of my Clorox stock put options out of the money. I expect my Feb naked puts will expire worthless in another week and I then will hold for a bit to see what happens to Clorox stock. I believe it may pull back toward the $65 level which I feel is top value presently for Clorox.

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