Why Colgate-Palmolive Stock Has Been A Safe Haven During The COVID-19 Crisis?

Comparing the trend in Colgate-Palmolive (NYSE: CL) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can recover to its pre-crisis levels, and rise further to around $80, once fears surrounding the coronavirus outbreak subside. Our conclusion is based on our detailed comparison of Colgate-Palmolive’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Colgate-Palmolive Stock Fare Compared With S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. Between February 19th and April 15th, Colgate’s stock has lost only ~3.5% of its value (vs. about an 18% decline in the S&P 500). In fact, Colgate’s stock has been roughly unchanged since March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown.

The situation on the ground has helped the case of Colgate’s stock

The relatively small decline in Colgate’s stock is understandable, considering that Oral care makes up nearly 80% of Colgate’s business, and in this time of crisis toothpastes and other oral care products come under the category of essentials. Sure, the disruption in the supply chain means that Colgate’s sales would see a slight decline, but given that people have been hoarding essentials, and countries under a lockdown have seen increased government efforts to deliver essentials, this impact is expected to be negligible. We believe Colgate’s Q1 results will confirm this reality with only a small drop in revenues across its 2 segments. Even if signs of coronavirus containment aren’t clear by the time of Q1 results in May, it’s likely Colgate’s stock would be well supported, irrespective of the broader market.

Colgate Stock Also Witnessed Something Similar During The 2008 Downturn

• We see Colgate’s stock declined from levels of around $26 in October 2007 (the pre-crisis peak) to levels of around $23 in March 2009 (as the markets bottomed out)- implying the company’s stock lost only ~13% from its approximate pre-crisis peak. This marked a much slower drop than the broader S&P, which fell by about 51%.
• However, Colgate stock recovered slower, post the 2008 crisis to about $32 in early 2010 – rising by 39% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Colgate’s Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Colgate stock has fallen by just 3.5% this time around compared to the 13% decline during the 2008 recession, we expect it to at least recover back to the $75 level before the coronavirus outbreak gained global momentum, and possibly rise further to around $80.

That said, the actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture and complements our analyses of Coronavirus impact on a diverse set companies. The complete set of coronavirus impact and timing analyses is available here.

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