Colgate-Palmolive Stock At $76- Fully Valued?

by Trefis Team
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Colgate-Palmolive stock (NYSE: CL) is up 12% since the beginning of this year, and at the current price of around $76 per share, we believe Colgate stock is fully valued.

Why is that? Our belief stems from the fact that Colgate stock remains about 33% higher than the low seen at the end of 2018. Our dashboard What Factors Drove 33% Change In Colgate-Palmolive Stock Between 2018 And Now? provides the key numbers behind our thinking, and we explain more below.

Colgate-Palmolive is one of the top players in oral care, and also a key player in the personal care and pet nutrition markets. Colgate’s stock rise over the past year came despite an unchanged earnings per share (EPS), as a 1.2% drop in net income was canceled out by a 1.2% drop in outstanding share count. Revenue grew 1% from 2018 to 2019, but foreign currency losses weighed down on net income, as margins dropped 2%.

Finally, Colgate’s Price-to-Earnings (P/E) ratio rose from 21x at the end of 2018 to 25x at the end of 2019. While its P/E has risen to almost 28x so far this year, given the volatility of the current situation, there is significant possible downside for Colgate’s current multiple, especially when compared with previous years: 21x at the end of 2018, and 25x as recently as 2019.

So what’s the likely trigger and timing to this downside?

While the global spread of Coronavirus has boosted demand for hygiene products, the resulting lock downs in many countries has impacted supply chain logistics, and this could impact Colgate’s revenues and earnings over 1H 2020. We believe Colgate’s Q2 results later this week will paint a clearer picture. Whether it also accompanies a lower 2H 2020 guidance or not, remains to be seen.

Regardless, if there isn’t clear evidence of containment of the virus anytime soon, we believe the stock will see its P/E decline from the current level of 28x to around 25x, which combined with a reduction in revenues and margins could result in the stock price shrinking to as low as $65.

To find out how Colgate’s consumer essentials peer Kimberly-Clark has performed over the same time period, view our interactive dashboard, What Factors Drove 29% Change In Kimberly Clark Stock Between 2017 And Now?.


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