Tags: Colgate-Palmolive | fairly | valued | CL

Colgate-Palmolive Pummels Market, Fairly Valued

By    |   Wednesday, 02 May 2012 03:50 PM

Colgate-Palmolive (CL) has had a strong run of late, beating the S&P 500 by roughly sixfold over the past 12 months while paying a solid 2.48 percent yield. Analysts find the stock fairly valued for now, however, and recent earnings did not seem to make the case for increasing weight in the position.

Colgate-Palmolive is a major consumer products company whose products are marketed in more than 200 countries and territories. It has approximately 38,600 employees.

The company manages its business in two product segments: oral, personal and home care; and pet nutrition. Oral care products include products such as Colgate Total, Colgate Sensitive Pro-Relief and Colgate Max Fresh toothpastes, Colgate 360° manual toothbrushes and Colgate and Colgate Plax mouth rinses, as well as dental floss and pharmaceutical products for dentists and other oral health professionals.

Under personal care, Colgate markets liquid hand soaps Palmolive, Protex and Softsoap brands. and the Palmolive, Softsoap and Sanex brand shower gels, Palmolive, Irish Spring and Protex bar soaps and Speed Stick, Lady Speed Stick and Sanex deodorants and antiperspirants, plus Palmolive and Caprice shampoo and conditioners.

Under home care is Palmolive and Ajax dishwashing liquids, Fabuloso and Ajax household cleaners and Murphy’s Oil Soap. Colgate is a market leader in fabric conditioners with leading brands, including Suavitel in Latin America and Soupline in Europe.

Oral, personal and home care accounted for 43 percent, 22 percent and 22 percent, respectively, of worldwide sales in 2011.

Colgate also owns Hill’s Pet Nutrition, sold primarily under two trademarks: Hill's Science Diet, which is sold by authorized pet supply retailers and veterinarians for everyday nutritional needs; and Hill's Prescription Diet, a range of therapeutic products sold by veterinarians and authorized pet supply retailers to help nutritionally manage disease conditions in dogs and cats.

Pet nutrition products accounted for 13 percent worldwide sales in 2011.

“Strong research and development capabilities and alliances enable Colgate to support its many brands with technologically sophisticated products to meet consumers’ oral, personal, home care and pet nutrition needs,” management told investors in a recent filing. “The company’s spending related to research and development activities was $262 million in 2011 and $256 million in each of 2010 and 2009.”

The company has a market cap of $47.3 billion in a sector, household products, where the average company size is $4.08 billion. Its trailing 12-month P/E ratio is 19.78 and its five-year projected price-to-earnings-growth (PEG) ratio is 2.35, compared to 2.53 for the sector.

Its projected earnings per share growth for the coming year is 9.80 percent, higher than the sector average at 8.38 percent.

Fairly valued

Analysts are mixed on Colgate-Palmolive. Merrill Lynch and Deutsche Bank call it a buy, and Morgan Stanley expects the stock to outperform. Of the remainder, the majority are neutral.

“At a 35 percent premium to the S&P 500 P/E, we view shares as fairly valued,” S&P wrote on April 26, following earnings.

Colgate Palmolive next reports on July 26.

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Wednesday, 02 May 2012 03:50 PM
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