Colgate-Palmolive Company CL is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 24.29, higher than the industry average of 22.07X and the S&P 500’s 22.69X. This premium valuation raises concerns about whether CL can meet investor expectations, especially considering its low Value Score of C, which suggests that it may not be a strong value proposition at current levels.
CL's P/E Performance
Zacks Investment Research
Image Source: Zacks Investment Research
Colgate shares have lost 10% in the past three months, underperforming the industry’s 3.2% dip and the broader Consumer Consumer Staples's 5.1% decline. Meanwhile, the S&P 500 has grown 8.3%. CL is also trading below its 50 and 200-day moving averages, indicating weakness in its momentum.
CL's Price Performance For Last Three Months
Zacks Investment Research
Image Source: Zacks Investment Research
Current Pressures on CL Stock
Colgate has been grappling with significant challenges from inflationary pressures, macroeconomic instability, and foreign currency headwinds. Persistent inflation in raw materials and packaging costs has negatively impacted profitability, while lower private-label volumes also weighed on results during the third quarter of 2024.
In North America, organic net sales declined 1.9% year over year, driven by a 3.2% decrease in pricing, partially offset by a 1.2% rise in volume. The pricing decline reflects a shift toward mid-tier products and channels, coupled with increased couponing and higher redemption rates across the Consumer Packaged Goods (CPG) industry.
In Latin America, net sales fell 3.2% due to unfavorable currency impacts. Overall, foreign currency fluctuations reduced total sales growth by 4.4% during the third quarter, with significant effects from Argentina and various countries in the Africa/Eurasia division. Excluding Argentina, currency effects still contributed a low-single-digit adverse impact, and the company’s full-year 2024 sales outlook anticipates a mid-single-digit negative impact from currency.
Can Growth Initiatives Turn the Tide for CL Stock?
Despite these challenges, Colgate is committed to driving long-term growth through increased advertising investments. For the remainder of 2024, the company plans to enhance brand-building initiatives and scale its capabilities, with advertising costs expected to rise both in absolute terms and as a percentage of sales.
Colgate’s strategy of offering core and premium innovation, driving its advertising spend, and scaling capabilities to boost brand strength and increase household penetration remains on track. It is also focused on the premiumization of its Oral Care portfolio through major innovations. Backed by premium innovation, products including CO. by Colgate, Colgate Elixir toothpaste and Colgate enzyme whitening toothpaste have been performing well.
Colgate has been gaining from strong pricing and the benefits of the funding-the-growth program and other productivity initiatives. The company has been implementing aggressive pricing for the last few quarters, which boosted margins in third-quarter 2024. In the third quarter of 2024, pricing improved 3.1% year over year, backed by positive pricing across all divisions, except for North America.
Management forecasts gross profit margin expansion on both a GAAP and adjusted basis, driven by continued pricing gains, benefits from revenue-growth management initiatives and strength in the funding-the-growth program. CL expects the Base Business’s EPS to increase 10-11% in 2024. On a GAAP basis, EPS is expected to rise by double digits.
Revised Estimates Signal Strength in CL Stock
Reflecting the positive sentiment, the Zacks Consensus Estimate for CL’s fiscal 2024 earnings has been unchanged in the past 30 days.
For fiscal 2024, the Zacks Consensus Estimate for CL’s sales and EPS implies 3.9% and 11.2% year-over-year growth, respectively. The consensus mark for fiscal 2025 sales and earnings indicates 3.4% and 7.4% year-over-year increases, respectively.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Investment Opinion on CL Stock
CL’s current position presents a mixed outlook, with strengths in premium innovation and strategic margin expansion efforts balanced against macroeconomic pressures and operational challenges. While its valuation remains elevated compared to peers and momentum has declined, the company’s focus on driving brand equity, household penetration and long-term growth through premiumization and increased advertising provides a solid foundation for recovery. Current investors should retain their positions in CL stock, while new investors might wait for a more favorable entry point. Colgate currently carries a Zacks Rank #3 (Hold).
Three Picks You Can’t Miss
We have highlighted three better-ranked stocks from the Consumer Staples sector, namely Ingredion Incorporated INGR, Freshpet FRPT and Pilgrim’s Pride PPC.
Ingredion Incorporated manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.5% from the year-ago reported number.
Freshpet, a pet food company, presently sports a Zacks Rank #1. FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.3% and 228.6%, respectively, from the year-ago period’s reported figure.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, currently carries a Zacks Rank of 2 (Buy). PPC delivered a positive earnings surprise of 30.9% in the trailing four quarters, on average.
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