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Can Progressive Growth Help Colgate’s 1Q16 Valuation Multiple?

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Relative valuation

Colgate-Palmolive (or Colgate) (CL) and Clorox (CLX) are trading at higher valuations relative to the S&P 500 Index (IVV) (SPY) (VOO) and the Dow Jones Industrial Average (DIA). Colgate is trading at a PE (price-to-earnings) multiple of 25.2x forward earnings. Clorox is trading at a PE multiple of 24.7x forward earnings. In comparison, the S&P 500 Index and the Dow Jones Industrial Average are trading at forward PE multiples of 17.8x and 16.7x, respectively. All of the valuations are as of April 18, 2016.

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Valuation of peers

Colgate’s peers include Procter & Gamble (PG) and Kimberly-Clark (KMB). They’re trading at higher PE multiples of 21.3x and 21.6x, respectively, compared to the S&P 500 Index. PG and KMB are trading lower than Colgate, however. Church & Dwight (CHD) is trading at a PE multiple of 26.0x forward earnings, the highest among its peers.

Value to customers

Colgate’s continued growth depends on the success of its existing products. It also depends on the successful identification, development, and launch of innovative new products and line extensions. P&G, Unilever (UL), and KMB also focus on providing goods of superior quality and value to its customers around the world.

Progressive growth initiatives

At the Consumer Analyst Group of New York’s Investor Conference (or CAGNY), Colgate’s CEO (chief executive officer) Ian Cook discussed progressive growth strategies going forward in 2016. The company is focusing on the following:

  1. clarity and consistency of strategy
  2. innovation to drive growth
  3. commercial strategies to build brands
  4. consumer engagement
  5. simplification and efficiencies to fund other activities

Colgate has promoted P. Justin Skala and Noel R. Wallace as Cook’s successors. In their new roles, Skala will look after operations in North America, Europe, and Africa as well as global sustainability. Wallace is in charge of the company’s Hill’s pet food line as well as global innovation and growth.

To learn more about the CAGNY conference, please read Colgate’s Clarity and Consistency of Strategy at the CAGNY Conference.

For more industry updates and analysis, please visit our Consumer Products page.

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