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Colgate-Palmolive Stock Could Rise More

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What drove Colgate-Palmolive stock higher?

Colgate-Palmolive (CL) stock has risen 14.5% on a YTD (year-to-date) basis as of October 11, 2017. Colgate-Palmolive stock benefited from a few rating upgrades in the past month. Analysts expect the company to outperform its peers following stronger organic sales growth. The growth was driven by emerging markets and currency tailwinds.

Colgate-Palmolive stock has outperformed its peers regarding price gains YTD. During the same period, Kimberly-Clark (KMB), Church & Dwight (CHD), Procter & Gamble (PG), and Clorox (CLX) stock rose 3.3%, 7.3%, 8.8%, and 8.8%, respectively. Meanwhile, the S&P 500 (SPX-INDEX) has risen 14.1%.

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Do fundamentals support the upside?

Colgate-Palmolive disappointed investors for the past three consecutive quarters. Moderating demand in the US (SPY), currency headwinds, and volatility in the Asia-Pacific region dented its sales growth. However, the company’s sales will likely improve in the coming quarters with currency headwinds subsiding and demand acceleration in emerging markets.

Challenges in the domestic market probably won’t subside soon and could continue to hurt its top line. Management also lowered its sales outlook for 2017 given the sluggish 1H17 performance and anticipating potential challenges.

Besides soft category growth expectations, the company’s high valuation also restricts the stock’s upside. Colgate-Palmolive was trading at a forward PE (price-to-earnings) multiple of 24.9x as of October 11, 2017, which is higher than the peer group’s average. On the same day, Kimberly-Clark, Procter & Gamble, Clorox, and Church & Dwight were trading at a forward PE ratio of 18.6x, 22.0x, 23.2x, and 23.7x, respectively.

Clorox and Church & Dwight offer better growth prospects in the near-term due to their industry-leading sales, balanced portfolio, focus on innovation, and cost-saving measures.

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