Analyzing Colgate-Palmolive’s Current Valuation
As of May 17, 2017, Colgate-Palmolive (CL) was trading at a 12-month forward PE (price-to-earnings) ratio of 25.5x—up from its forward PE multiple of 24.1x on May 16. Now, the company is trading at a premium multiple compared to the S&P 500 Index’s (SPX) forward PE ratio of 18.4x. The company also trades at a higher valuation multiple compared to most of its peers excluding Church & Dwight (CHD), which trades at a slighter higher multiple of 25.7x.
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Colgate-Palmolive’s forward PE multiple is significantly higher than the peer group average of 21.7x. As of May 17, 2017, Johnson & Johnson (JNJ), Kimberly-Clark (KMB), Procter & Gamble (PG), and Clorox (CLX) were trading at forward PE multiples of 17.8x, 20.2x, 21.5x, and 23.6x, respectively.
The 12-month forward PE multiple will differ among peers based on several factors like growth expectations, leverage, profitability, and risk-return profiles.
Earlier, Colgate-Palmolive expected to start the current year on a strong note due to growth across all of the regions. However, that didn’t happen due to continued softness in the US (SPY) and challenges in major international markets including Europe, China, and India. Given the slow start, management expects organic sales to remain below its earlier guidance range of 4%–7% growth in 2017. Analysts expect sales to rise 2.2% to $15.5 billion in 2017.
Amid slow growth, Colgate-Palmolive’s focus on productivity and cost savings is projected to drive profitability in upcoming quarters. Management expects low single-digit growth in its EPS for 2017, while analysts expect a 4% rise in the company’s bottom line.
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