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Why Tough Times May Be Ahead for Colgate-Palmolive Stock

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Sales and margin headwinds

As of February 15, Colgate-Palmolive (CL) stock had risen 11.7% this year, outperforming most peers. Procter & Gamble (PG), Kimberly-Clark (KMB), and Clorox (CLX) stock had risen 7.1%, 3.9%, and 1.4%, while Church & Dwight (CHD) had fallen 1.6%.

Despite outperforming peers, Colgate-Palmolive stock may not continue upward as sales and margin headwinds impact its financials in future quarters. We expect currency volatility to limit its top line, which is expected to fall. Higher raw and packaging material costs and logistics costs are expected to impact its margins, and in turn, its EPS.

Colgate-Palmolive’s adjusted EPS are projected to fall this year due to top-line weakness, narrower margins, higher advertising costs, and a higher tax rate. However, higher pricing and cost savings could cushion its organic sales and margins.

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Unattractive valuation

Colgate-Palmolive stock is trading at 22.7 times its 2019 EPS estimate of $2.85, which seems high given that its EPS are projected to fall 4%. Its dividend yield is 2.6%. In comparison, Kimberly-Clark’s and Procter & Gamble’s valuation is lower, and they offer a better dividend yield. Kimberly-Clark’s forward PE multiple and dividend yield are 18.0x and ~3.5%, respectively, while Procter & Gamble’s are 21.3x and ~2.9%.

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