Will Colgate-Palmolive Stock See Higher Levels After Over A 15% Rise This Year?

Colgate-Palmolive (NYSE: CL) reported its Q1 results on April 26, with revenues and earnings above the street estimates. The company reported $5.1 billion revenue and $0.86 adjusted earnings per share, compared to the consensus estimates of $5.0 billion and $0.82, respectively. Despite its upbeat results, we think CL stock is fully valued at $93. In this note, we discuss Colgate-Palmolive’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at Colgate-Palmolive’s stock performance. CL stock has witnessed gains of 10% from levels of $85 in early January 2021 to around $95 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period.
However, the increase in CL stock has been far from consistent. Returns for the stock were 0% in 2021, -8% in 2022, and 1% in 2023.

In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that CL underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including WMT, PG, and COST, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could CL face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? From a valuation perspective, we believe CL stock is appropriately priced. We estimate Colgate-Palmolive’s Valuation to be $91 per share, close to its current market price of $93. Our forecast is based on a little over 26x P/E multiple for CL and expected earnings of $3.43 on a per-share and adjusted basis for the full year 2024. The 26x figure aligns with the stock’s average P/E multiple over the last three years.

Colgate-Palmolive’s revenue of $5.1 billion in Q1 was up 6% y-o-y, led by a 7% growth in Oral, Personal, and Home Care and a 4% rise in Pet Nutrition segment sales. On an organic basis, sales were up 9.8% y-o-y, driven by an 8.5% pricing growth and 1.3% volume gains. The company also saw its adjusted operating margin expand by 170 bps to 21.4%. Higher revenues and margin expansion resulted in adjusted earnings per share growth of 18% to $0.86 in Q1’24, compared to $0.73 in the prior-year quarter.

Looking forward, Colgate-Palmolive expects its organic sales to rise between 5% and 7% and the adjusted earnings to rise in mid-to-high single-digits. It reported sales of $19.5 billion and adjusted earnings per share of $3.23 in 2023. Overall, the company is expected to navigate well in the near term, led by pricing gains as well as volume growth in both – Oral, Personal, and Home Care, and Pet Nutrition segments. That said, we think much of these positives are already priced in, and investors willing to enter will likely be better off waiting for a dip to garner robust long-term gains.

[1] Returns as of 5/7/2024
[2] Cumulative total returns since the end of 2016