Solid, Steady Church & Dwight Aquire New Growth Machine We've liked Church & Dwight (NYSE: CHD) for its slow, steady growth and reliable dividend and now we like it even more. The company just announced a new deal that...

Church & Dwight Co., Inc Is A Buy On Market Weakness

We've liked Church & Dwight (NYSE: CHD) for its slow, steady growth and reliable dividend and now we like it even more. The company just announced a new deal that already has the analysts warming up and we see this driving share prices higher. A minimum of five analysts have come out in the wake of this announcement, the purchase of Therabreath, and most of it is bullish. Four of the five commentaries raised their price targets while maintaining a collective Hold rating while one, JPMorgan, reiterated a Sell rating.

The reason is simple. Therabrush is the nation's #2 alcohol-free mouthwash brand in the U.S. and a growth opportunity for the company. Not only is Therabrush's TTM revenue worth about 650 basis points of growth but Church & Dwight are planning to leverage their manufacturing capabilities and distribution footprint to grow the company even more. The initial estimates for 2022 are +15 for Therabreath and we think that target will be easily met. More importantly, Therabreath already boasts a solid 31% EBITDA margin and another $6 million in synergies are what is expected.

The Analysts Like What They See

Despite naysayer JPMorgan the analysts like what they see. The deal is expected to be financed with debt, worth $580 million, and the balance sheet is more than strong enough to handle it. The balance sheet is net-debt but total debt is low at only 56% of equity and the free-cash-flow and coverage ratios are more than safe. In our view, not only is there no red flag for the acquisition but there is no reason to fear the dividend or its future either. The company has been increasing for the last 17 years and we see it continuing this trend into Dividend Aristocrat status. The only catch is the yield, about 1.0%, but what you lose in payout you gain in safety.

The Marketbeat.com consensus rating on Church & Dwight is a Hold but with a bias to Buy considering there is at least one Overweight rating in the group. The consensus price target of $91 assumes the stock is already fairly valued but there is a caveat. The consensus price target does not fully reflect the latest activity which assumes at least a little bit of upside and includes the new high price target of $105. The $105 target is predicting about 15% of upside and that could grow if the broader market sell-off intensifies.

Insiders And Institutions Own Church & Dwight Co., Inc

Although insiders haven't been robust purchasers of the stock this year the selling seen in 2020 has tapered off to virtual nil while institutional interest remains high. Insiders still own about 2.0% of the stock while institutions control another 80% and their holdings are growing. There has not been a lot of activity over the past year but there has been steady rotation with buyers outpacing sellers each quarter.

The Technical Outlook: Church & Dwight Pull Back

Shares of Church & Dwight hit a high just days before the acquisition news was confirmed but are now pulling back to support. We may be looking at a buy-the-rumor-sell-the-news event but it is more likely related to the rise of Omicron COVID and Jerome Powell's comments about tapering. Regardless and in either case, this pullback is setting up another buying opportunity in this high-quality consumer staple. We expect to see support kick in around the $90 range, if not the stock may fall into the $86 to $88 range.