Bear Of The Day: Colgate - Palmolive

Colgate-Palmolive (CL - Free Reportis a Zacks Rank #5 (Strong Sell) that manufactures and sells consumer products on a global scale. The company operates in two segments, with one focusing on oral and home care, while the other is on pet nutrition.

The stock saw success during the pandemic when the stay-at-home trend gained steam. However, since the start of 2021, the stock has gone sideways.

After a recent earnings report, analyst estimates are starting to drop. With the stock trading at the bottom of its 2021 range, the bulls are in danger of capitulation with the market atmosphere being so weak.  

About the Company

Colgate-Palmolive is headquartered in New York, NY. The company employs over 33,000 people and was founded way back in 1806.

CL makes a lot of the products you use at home. Some of its products include toothpaste, toothbrushes, mouthwash, soap, shampoo, deodorants, household cleaners, and many more.

Some popular brands include Colgate, Tom's of Maine, Irish Spring, Palmolive, Softsoap, Speed Stick, Ajax, Soupline, and Cuddly.

CL is valued at $63 billion and has a Forward PE of 24. The company holds a Zacks Style Score of “D” in Value and “A” in Growth. The stock pays out a dividend with a 2.5% yield.   

Q1 Earnings

Colgate reported late last week, with earnings coming in as expected. Revenues missed, coming in at $4.40B v the $4.42B expected.

The company raised its mid-point FY22 organic revenue to +4-6% from the 3-5% long-term range. However, the company cut its non-GAAP gross margins. Additionally, the company revised its FY22 EPS outlook lower due to cost pressures.

Colgate commented that raw materials and logistics will cost an additional $650M for the company. The biggest cost impact has been fats and oil, including palm and soybean oils.  

While revenues are increasing, costs will be cutting into that bottom line. For that reason, analysts are lowering estimates as they see the short-term cost pressures weighing into the stock multiple.

Colgate-Palmolive Company Price and Consensus

ColgatePalmolive Company Price and Consensus

Colgate-Palmolive Company price-consensus-chart | Colgate-Palmolive Company Quote


Over the last month, estimates are trending lower for all timeframes.

For the current quarter, estimates have dropped from $0.79 to $0.73, or 7%. For the current year, estimates fell to $3.14 from $3.31, or 5%.

In addition to estimates going lower, analysts are dropping price targets as well.

Morgan Stanley took their target down to $82 from $91. While Atlantic Equities dropped its rating to Neutral and cut its target to $80 from $92.

Technical Take

CL has been stuck in a large trading range from July of 2021. This range is seeing buyers at $75 and selling at $85. The bottom of this range has been tested about six times and after the recent earnings report, it is being tested again.

The stock is below all its moving averages, with the 200-day at $78.75.

If the stock breaks its recent low, investors should look for the $69 area as support. This is the 61.8% retracement from COVID lows to 2020 highs. If this spot were to fail, look for those COVID lows around $60 to be tested.

In Summary

Colgate is a household name and the stock is pretty steady when you zoom out on the chart. However, the cost pressures the company is seeing will bring short-term pressure as margins are pressured.

For now, a better consumer staple option might be PepsiCo (PEP - Free Report). The stock is a Zacks Rank #3 (Hold) and the company is coming off a 4% EPS beat last week.   

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