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Church & Dwight: Visionary Value
02/27/2015 8:00 am EST
With high earnings growth, strong margins, solid management, and innovative product development, this latest featured stock—in the consumer products sector—is a potential visionary company, explains Peter Mantas, manager of Logos LP and editor of Logos LP Journal.
In the book Built to Last: Habits of Visionary Companies, the authors took hundreds of thousands of financial documents from 1926 to 1990 of a handful of visionary companies determined by a survey of Fortune 500 CEOs. They then mapped the performance of these visionary companies over this time span.
The results were astonishing; if an investor had put $1 in a basket of these visionary companies in 1926, his or her investment would be worth $6,356 in 1990 versus only be $415 in the general market.
Clearly, there must be some sort of common qualities amongst these visionary companies that creates this vast performance spread.
In fact, there were a number of factors that led to the meteoric rise of these entities, including but not limited to open innovation, internal competition, flexibility, and immensely strong cultures and values.
How does any of this apply to Church & Dwight (CHD), which may seem like a boring baking soda company? I believe Church & Dwight is a visionary company in the making.
It is a US mid-cap (only worth about $10 billion) but CHD oozes with a competitive, innovative, and adaptive culture only seen by visionary companies.
CHD is a master allocator of capital and innovator. 80% of its current revenues come from four major brands and three of them did not exist before 2001. Its total stock return for the last ten years is near 40% per year and management is keen on enhancing shareholder value by raising dividends and buybacks.
CHD is not just acquiring brands for the yield, they are on the hunt for innovation, their most recent acquisition, VI-COR, is in the industrial cleaning and farming business, which creates a whole new world of derivatives for their specialty division, which is growing at nearly 20% per year.
Moreover, CHD is looking to expand its consumer healthcare business as seen with its acquisition of Vitafusion in 2012, which typically has very strong margins.
Overall, CHD is well managed, very competitive, and has a recession proof portfolio which anchors its ability to make timely acquisitions, all the while innovating and cost-cutting, which only perpetuates its growth cycle. Healthcare and non-cyclical Goliaths should be afraid of this David.
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