Church & Dwight Co., Inc. CHD
CHD trades at an all-time-high premium as a trade-war safe haven, but CEO Farrell's financial-engineering roll-up is cracking; 35-50% downside to $40-$52/share.
Thesis
Church & Dwight, the $22bn consumer-staples roll-up best known for Arm & Hammer, has rallied to an all-time-high valuation as investors crowded into defensive names during the 2019 trade-war scare. Spruce Point argues the premium is unjustified: since CEO Matt Farrell (formerly of scandal-plagued Alpharma) took the helm in 2016, strategy has pivoted from product innovation to financial engineering, with three recent expensive acquisitions, Waterpik, Passport and FLAWLESS, already showing sales declines, margin erosion and questionable accounting. Forensic work surfaces undisclosed M&A, increased factoring, inventory-method gimmicks that inflated gross margin and a related-party JV with Occidental (Armand Products) that appears to require consolidation. Insiders own just 2% and are selling into the rally. With shares 8% above Street price targets, Spruce Point values CHD at 13-16x adjusted EBITDA, implying $38-$52/share and 35-50% downside.
SCQA
Church & Dwight is a $22bn S&P 500 consumer-staples roll-up behind Arm & Hammer, trading at an all-time-high premium multiple as investors crowd into defensive names during the 2019 trade war.
Under CEO Matt Farrell the strategy has pivoted to financial engineering; recent headline acquisitions (FLAWLESS, Waterpik, Passport) are already missing targets and accounting, factoring and a hidden Armand JV are inflating reported EBITDA.
Sell the stock; the Board should suspend acquisitions, split Farrell's CEO/Chairman role, claw back gamed bonuses and consolidate the Armand related-party JV via a full restatement.
On normalized EBITDA of $940-$978m at 13-16x, Spruce Point derives a $38-$52 price target versus ~$80 today, or 35-50% downside, in line with its prior forensic-short track record.
The three reasons
- 1
CEO Farrell's financial-engineering playbook mirrors his prior failure at Alpharma
- 2
Recent acquisitions FLAWLESS, Waterpik and Passport already missing targets and margins
- 3
Hidden Armand JV plus accounting gimmicks materially inflate reported EBITDA and cash flow
Primary demands
- Investors should sell CHD shares (Strong Sell opinion)
- Board should suspend further acquisitions pending review of recent deals
- Divide Farrell's combined CEO/Chairman role
- Restate financials to consolidate the Armand Products related-party JV
- Claw back unjustly earned executive compensation tied to gamed bonus targets
KPIs cited
Pattern membership
Precedents cited
- Spruce Point's prior short of Caesarstone (2015)
- Spruce Point's prior short of Boulder Brands (2013)
- Spruce Point's prior short of Weis Markets (2018)
- Spruce Point's prior short of iRobot (2018-19)
- Spruce Point's prior short of Mettler-Toledo (2019)
- Spruce Point's prior short of A.O. Smith (2019)
- Farrell's tenure as CFO of Alpharma (material weaknesses, non-reliance opinion, DOJ settlement)
Composition what's on the 92 slides
Slide gallery ·
Notes
Signature Spruce Point long-form forensic short deck (92 pages). Memorable condom-box cover ("Arm Yourself To Get Hammered") and distinctive teal/grey branded template. Strong SCQA with a dismantled bull-case slide (p.11) and annotated share-price chart (p.10) that are unusually stealable. Valuation waterfall (p.92) produces an explicit $38.47-$52.01 price target; peer-gap tables on p.89-90 anchor the overvaluation argument. Uses Nielsen data, Amazon scrapes, channel checks and former-employee quotes (e.g. the "Dump it! Horrible" soundbite on p.30) alongside verbatim CEO/CFO call quotes to expose contradictions. Short-seller context: no long stake disclosed; Spruce Point is explicitly short via stock, puts and calls per the disclaimer. Date inferred from filename and cover (9-5-2019).