Through The Fly's Eyes: WD-40 Company
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
Much More Than Just Lubricants
Brand supremacy is often said to be the Holy Grail of business. There is a San Diego firm that ranks among the leaders in the quest for that absolute. The company's product list is one of the best recognized anywhere.
WD-40 Company (WDFC) produces lubricants, hand cleaners, and household cleaners. Products include lubricants WD-40 and 3-IN-ONE Oil, the Lava and Solvol brands of heavy-duty hand cleaners, 2000 Flushes toilet bowl cleaner, X-14 bathroom cleaners, Carpet Fresh rug and room deodorizers, and Spot Shot carpet stain remover. The firm attempts to build brand equities that are first or second choice in their respective categories, by acquiring and developing products that deliver a unique value to end users and that can be distributed across multiple trade channels. Key competitors are Clorox (CLX), Church & Dwight (CHD) and S.C. Johnson.
The company pleased investors last week, when it announced Q2 EPS of 52 cents and revenues of $79.3 million. Analysts had been expecting 46 cents and $78.3 million. Management also guided FY07 EPS to $1.70-1.85 ($1.76 consensus) and FY07 revenues to $307-324 million ($313.14M consensus). The board authorized an open-ended buy back of company shares up to $35 million, over the next 12 months.
WDFC shares broke through concentrated moving average resistance on the news and have since been defining a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
Brokers recommend the issue with one "strong buy," three "holds" and two "sells." Analysts see an 11% average annual growth rate, through the next five years. The WDFC Price to Sales ratio (2.08), Price to Book ratio (3.73), Sales Growth rate (20.93%), Return on Assets (10.58%), Return on Investment (12.89%), Return on Equity (18.23%) and Revenue per Employee ($1.25M) compare favorably with industry, sector and S&P 500 averages.
Institutions hold about 66% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $29.91 and $37.86. A stop-loss of $31.30 looks good here.