Colgate Palmolive (CL) is a Zacks Rank #5 (Strong Sell) that manufactures and sells consumer products globally. The Company operates in two segments, one focusing on oral and home care, while the other focuses on pet nutrition.
The title saw success during the pandemic when the stay-at-home trend gained momentum. However, since the start of 2021, the stock has deviated.
After a recent earnings report, analysts’ estimates are starting to drop. With the stock price at the bottom of its 2021 range, the bulls are likely to capitulate with such a weak market mood.
About the company
Colgate-Palmolive is headquartered in New York, NY. The company employs over 33,000 people and was founded in 1806.
CL manufactures many of the products you use at home. Some of its products include toothpaste, toothbrushes, mouthwashes, 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 a dividend with a yield of 2.5%.
1st quarter profits
Colgate released a report late last week, with earnings as expected. Revenue fell short, coming in at $4.40 billion versus the $4.42 billion expected.
The company raised organic revenue midway through FY22 to +4-6% from the long-term range of 3-5%. However, the company reduced its non-GAAP gross margins. Additionally, the company downgraded its FY22 EPS outlook due to cost pressures.
Colgate said raw materials and logistics would cost the company an additional $650 million. The largest cost impact was fats and oils, including palm and soybean oils.
As revenues increase, costs will reduce this bottom line. For this reason, analysts are lowering their estimates as they see near-term cost pressures weighing on the stock multiple.
ColgatePalmolive Company Price and Consensus
ColgatePalmolive Company price-consensus-chart | Quote from ColgatePalmolive Company
Over the past month, estimates have tended to drop for all time periods.
For the current quarter, estimates have risen from $0.79 to $0.73, or 7%. For the current year, estimates have risen from $3.31 to $3.14, or 5%.
In addition to lower estimates, analysts are also lowering price targets.
Morgan Stanley lowered its target to $82 from $91. While Atlantic Equities downgraded its rating to Neutral and reduced its target to $80 from $92.
CL has been stuck in a wide trading range from July 2021. This range sees buyers at $75 and sells at $85. The bottom of this range has been tested about six times and after the recent report of the results is being tested again.
The stock is below all of 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 the COVID lows to the 2020 highs. Should this spot fail, look for these COVID lows around $60 to test.
Colgate is a household name and the stock is quite stable when you zoom out on the chart. However, the cost pressures the business is facing will cause short-term pressure as margins come under pressure.
For now, a better consumer staple option might be PepsiCo (PEP). The stock is a Zacks Rank #3 (Hold) and the company just beat 4% EPS last week.
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