A Breakdown of Colgate’s Businesses by Value
Colgate-Palmolive (NYSE:CP) is the world leader in oral care with close to a 35% share of the $18 billion global market comprising of toothpaste, toothbrush, mouthwash, dental floss etc. It also makes soaps, shampoos, dish wash and surface cleaners, fabric conditioners, deodorants and pet nutrition supplements, and is one of the leading players in personal care industry competing with companies like Procter & Gamble (NYSE:PG), Unilever (NYSE:UL) and Kimberly Clark (NYSE:KMB). Colgate sells in over 200 countries across the globe resulting in over three-fourth of net sales coming from outside US.
We value Colgate-Palmolive’s stock with a Trefis price estimate of $85, at close to a 8% premium to its current market price. We believe oral care makes up over 44% of Trefis price estimate with soaps, shampoos and deodorants together constituting 25% of its stock.
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Given the breadth of Colgate-Palmolive’s products range and inspired by a similar breakdown by products segment of P&G’s value that we examined in a previous article, we decided to explore how different product segments bear varying significance on Colgate-Palmolive’s stock.
Among the product segments in which Colgate-Palmolive competes, the segments that we believe will be the most crucial to Colgate are those that constitute a higher proportion of current revenues and/or those that have the highest expected revenue growth. We approximate Colgate’s revenue growth by estimating the overall growth in the market size combined with an incremental growth component on account of market share gains.
The following chart summarizes our estimates of Colgate-Palmolive’s business over the next five years (2011-16)
Percentages in parenthesis represent each product segment’s contribution to Colgate-Palmolive’s current revenues. The horizontal bars illustrate our estimates for compound annual growth rate (CAGR) of 2011-16 revenues, split between growth in market size (in blue) and growth due to Colgate-Palmolive’s market share gains (in red) across each product segment.
Oral Care market shall continue to be the most crucial for Colgate. It currently makes up 45% of Colgate’s revenues and is poised for an equally impressive growth of 6.3% year-on-year. A significant portion of this growth comes from the fact that Colgate enjoys a lot of brand awareness and consumer recall that shall translate into market share gains.
Hair Care comes next with its 19% contribution to Colgate’s revenues with 4.8% growth in overall hair care market and 2.1% growth on account of market share gains from Palmolive and Caprice shampoos and hair conditioners.
Colgate-Palmolive might be the market leader in fabric conditioners with leading brands such as Suavitel in Latin America and Soupaline in Europe but since fabric conditioners itself constitute a very small percentage of the laundry market, we do not expect laundry segment with its low market growth rate to bear much significance to Colgate’s total value, going forward.
We believe Deodorants & Antiperspirants have an impressive growth outlook but since they currently constitute a very small percentage of total revenues at around 3%, we do not see Colgate-Palmolive drawing much value from this segment in the near future.
We believe these segments offer the most growth for Colgate and could contribute to the stock price.