CL Colgate Palmolive Co

We have maintained our long-term Neutral recommendation on Colgate-Palmolive Company (CL) with a target price of $89.00 per share. Moreover, the company has a Zacks #3 Rank, implying a short-term 'Hold' rating on the stock.

Colgate-Palmolive is the industry leader in oral care and commands market-leading positions in many personal care product categories. Furthermore, a strong portfolio of globally recognized brands, including Colgate, Palmolive, Mennen, Softsoap, Irish Spring, Protex, Sorriso, Kolynos, Elmex, Ajax and Axion provide a competitive advantage to the company and strengthens its dominant position in the market.

Moreover, in an effort to further boost growth, Colgate seeks to capture significant opportunities by identifying and targeting consumer needs within its core categories. The company further focuses on innovation and deployment of valuable consumer and shopper insights for developing successful new products regionally, which are rolled out on a global basis.

Further, Colgate-Palmolive is focusing on acquiring businesses, which have the potential for generating higher top-line growth and margin. Following the strategy, the company has recently acquired Sanex business and divested its laundry detergent brands in Colombia. Colgate-Palmolive believes that these transactions will improve its fiscal 2011 earnings by 4%. The company forecasts that the addition of the Sanex brand will contribute 1% earnings growth in fiscal 2012.

In addition, Colgate has a consistent track record of returning cash to shareholders in the form of regular dividends. The company utilized cash reserves of $889.0 million, $981.0 million and $1,142.0 million toward dividend payments in 2008, 2009 and 2010, respectively.

However, the competitive dynamics in the household products industry have radically changed from the earlier emphasis on cost savings and manufacturing efficiencies to gaining market share. As a result, costs have increased with the rise in marketing and promotional expenditures, thereby weighing upon the bottom-line growth.

Moreover, due to its exposure in international market, Colgate remains prone to currency fluctuation. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the U.S. An increase in product price may have a direct impact on consumer demand.

Above all, Colgate operates in an intensely competitive environment. The resurgence of archrival Procter & Gamble Company (PG) has signaled new challenges. Globally, competitions have also intensified, and Colgate is facing the brunt in China, Russia, India, Hong Kong, Brazil and Mexico.

 
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