Buy Alberto-Culver? Sell Church & Dwight?

Apparently not all household and personal care stocks are a safe bet. Salomon Smith Barney said on Monday it lowered its investment rating on Church & Dwight Co. to neutral from outperform, citing the household products maker’s recent acquisition of the consumer products business of Carter-Wallace Inc.

At the same time, however, Salomon Smith Barney said it raised its investment rating on beauty products maker and retailer Alberto-Culver Co. to outperform from neutral. The brokerage said the primary reason for its upgrade is its increased confidence in the momentum of the company’s business.

“Our sense of stronger business fundamentals is supported by the fact that Alberto-Culver’s hair and skin care market shares continue to grow impressively,” it said in a research note. “In addition, we expect strong growth for the Sally Beauty business to continue,” it added. Shares of Alberto-Culver closed on the New York Stock Exchange at $40.58 on October 5.

In downgrading Church & Dwight, Salomon analysts feared the Carter-Wallace acquisition may distract Church & Dwight’s management from its core businesses, which all face very tough competition, analyst Wendy Nicholson said in a research note. “In addition, we have been disappointed in (the company’s) recent market shares, particularly in its toothpaste, cat litter and deodorant categories,” said Ms. Nicholson.

Lastly, Ms. Nicholson said there was concern that Church & Dwight’s recent acquisitions may erode the company’s operating margins, as the acquired brands need “significant reinvestment.”