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Why the Uptrend in Colgate-Palmolive Stock Might Not Hold

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CL outperforms its peers

Colgate-Palmolive (CL) stock has generated better returns than most of its peers so far this year and has outperformed the broader market. Colgate-Palmolive stock is up 10.5% on a YTD (year-to-date) basis as of February 11. Meanwhile, the S&P 500 Index has gained 8.1%. The Consumer Staples Select Sector SPDR ETF (XLP) is up 6.2% so far YTD.

In comparison, Procter & Gamble (PG), Kimberly-Clark (KMB), and the Clorox Company (CLX) stock are up 6.9%, 2.5%, and 0.9%, respectively, YTD. On the contrary, Church & Dwight (CHD) stock is down 2.4%.

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Persisting challenges

Colgate-Palmolive stock is benefiting from an improvement in organic sales, which analysts expect the company to sustain in the coming quarters. Also, Colgate-Palmolive posted better-than-expected fourth-quarter results on January 25. Colgate-Palmolive’s price-restructuring initiatives are driving its organic sales. The benefits from its recent skincare acquisitions have further supported its top line growth.

However, we expect Colgate-Palmolive’s top line to remain weak in the first half of 2019. We expect currency volatility and increased competition to continue to hurt its top line in the near term. Its bottom line is also expected to decline as soft sales, cost headwinds, and a higher tax rate compared to 2018 take a toll on its profitability. Its current valuation likely isn’t attractive enough to support the upside in its stock.

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