uploads///CL Valuation

How Colgate-Palmolive Compares with Peers in Valuations


Jan. 23 2018, Updated 7:34 a.m. ET

Colgate-Palmolive stock trades at a premium

As of January 19, 2018, Colgate-Palmolive (CL) stock was trading at a forward PE (price-to-earnings) multiple of 25.4x, which is about 12% higher than the peer group average of 22.7x. The company’s stock is also trading higher than its historical average of 24.1x, and the company’s valuation multiple is even higher than the S&P 500 Index’s (SPX) forward PE ratio of 20.0x.

On the same date, Clorox (CLX), Church & Dwight (CHD), Procter & Gamble (PG), and Kimberly-Clark (KMB) stock were trading at forward PE multiples of 24.8x, 23.9x, 21.5x, and 18.0x, respectively.

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Growth expectations

Colgate-Palmolive stock has witnessed healthy growth in the past year, despite the company’s dwindling sales performance. A couple of analysts previously stated that Colgate-Palmolive’s current valuation looks compelling because the company is likely to benefit from favorable currency rates and improved performances in emerging markets.

CL’s top line did benefit from favorable currency movements and increased sales in emerging markets—especially in Latin America. However, that growth didn’t help its profitability much, as increased input costs and higher marketing and advertising expenses pulled its margins down. Macroeconomic challenges in specific markets and increased competition from local players further subdued its earnings growth.

Colgate-Palmolive’s sales and EPS (earnings per share) are expected to increase going forward, driven by new products and cost and productivity savings, but the growth rate is expected to remain low.

Notably, the forward PE valuation multiple depends on several factors, including growth expectations and leverage profile. A company with a high growth expectation is likely to command a higher valuation multiple.


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