A Closer Look At Colgate-Palmolive’s Valuation

by Trefis Team
-7.86%
Downside
74.50
Market
68.64
Trefis
CL
Colgate-Palmolive
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Colgate Palmolive (NYSE: CL) has had a relatively challenging fiscal 2018 so far, largely due to due to rising commodity costs and volatile exchange rates, in addition to weak category demands in many key markets. However, the company’s net sales were up 4% year-over-year (y-o-y) while organic sales grew 1% y-o-y, largely driven by volume growth of 2% and flat pricing globally in the fiscal first half of 2018.

We have summarized our forecasts for Colgate-Palmolive’s fundamental value based on expected 2018 results in an interactive model. You can modify assumptions such as changes in expected segment revenue or EBITDA margins to see how they impact the company’s value. The image below shows one of the key steps in identifying Colgate-Palmolive’s valuation sensitivity to changes in its segment revenues. We detail how changes in revenue or segment EBITDA margin impacts total EBITDA, which then impacts enterprise value (assuming a constant EBITDA multiple).

Colgate-Palmolive’s stock price has fluctuated between $61 and $77 since the beginning of this year. We have maintained our long-term price estimate for the company at $68. Our price estimate is slightly ahead of the current market price, which is driven by the forecast performance of the Personal Care and the Oral Care segment. Our forecasts for the year are summarized in our dashboards for Colgate-Palmolive. If you have a different view, you can modify various inputs to see how updated inputs impact the company’s valuation. You can share the links to scenarios created on our platform.

Going forward, we expect higher estimated freight and logistics costs, increased competitive activity and a slowdown in growth in some markets to impact the company’s sales in the second half of the year. However, we expect the company’s Funding The Growth initiative to help offset some of the high raw material inflation. Further, we also expect Colgate’s revenues to be driven by ongoing innovation in products such as toothpaste and soaps, and also benefit from population growth, particularly in emerging markets. Almost half of the world’s population resides in China, India, and Africa, and only about a quarter of Colgate-Palmolive’s sales are generated there. Accordingly, the company still has room to grow in these emerging markets, primarily due to low penetration of its category products in these regions and the likely increase in the consumption of its products with economic development.

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