What Is Driving Our $72 Price Estimate For Colgate-Palmolive?

by Trefis Team
-6.07%
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Trefis
CL
Colgate-Palmolive
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Colgate Palmolive (NYSE:CL) is a worldwide producer and distributor of household, healthcare and personal care products. It is a global leader in the oral care hygiene market, with a market share of 43% in the global toothpaste market and 32.6% in the global manual toothbrush market. In 2017, the company’s overall sales grew 1.5% year-over-year (y-o-y), with a 0.5% increase in volume growth and a 1% increase in organic sales, driven by an increase in Oral Care organic sales, partially offset by a decline in Personal Care and Home Care organic sales in the same period. Colgate-Palmolive had a relatively challenging 2017 – as it witnessed high material and logistics costs, increased competitive activity and a slowdown in growth in some markets. However, we expect 2018 to be comparatively less challenging, primarily driven by ongoing innovation in products such as toothpaste and soaps. We also expect the company’s Funding The Growth initiative to help offset some of the high raw material inflation. We also expect the company to benefit from population growth, particularly in emerging markets.

Overview Of Estimates

We have a $72 price estimate for Colgate-Palmolive, which is around 10% ahead of the current market price. Our interactive valuation dashboard For Colgate-Palmolive details our forecasts and estimates for the company. Below we outline the key drivers of our price estimate.

We expect Colgate-Palmolive to generate just over $16 billion in revenues in 2018, and earnings of around $2.4 billion. Our revenue forecast of $16.1 billion represents year-on-year growth of nearly 4%. Of the total expected revenues in 2018, we forecast $7.4 billion to come from the Colgate Oral Care business, over $3 billion for the Personal Care business, around $3.3 billion in the Home Care business, and nearly $2.4 billion for Hill’s Pet Nutrition.

Nearly 75% of Colgate’s net sales are generated from markets outside the U.S., with approximately 50% of the company’s net sales coming from emerging markets – which consist of Latin America (25%), Asia Pacific (18%), and Africa/Eurasia (6%). In 2017, the company’s net sales in Latin America grew 6.5% y-o-y, with organic sales up 5.5% y-o-y, driven by volume growth of 2.5% and net selling price increases of 3.0%. However, the company’s performance in North America remained weak in this period – with the company’s net sales and organic sales declining 2% y-o-y, and volume growth coming in flat. We expect that trend to continue going forward.

Colgate-Palmolive’s stock is down more than 10% year-to-date as of July 2. This is largely due to uncertainty in global markets and challenging category growth worldwide. Going forward, the company intends to increase its advertising investments in 2018 and maintain that investment throughout the year in support of new products. Our valuation dashboard suggests that Colgate’s valuation still has more upside, and we expect the company to grow at a slightly faster pace than that of 2017 going forward.

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