October 3, 2018

CL – Market expectations are for Uniform ROA expansion, but management is concerned about their margins, toothpaste segment, and Mexico

  • Colgate-Palmolive Company (CL:USA) currently trades below recent averages relative to UAFRS-based (Uniform) Earnings, with a 22.0x Uniform P/E. However, even at these levels, the market has somewhat bullish expectations for the firm, while management is concerned about rising Brent Crude prices, their toothpaste segment, and destocking in Mexico
  • Specifically, management may be concerned about the impact that the rising price of Brent is having on their margins, and about the destocking of their products in Mexico. Additionally, they may be exaggerating their optimism that the combination of raw material inflation and recent weakness in Latin American currencies versus the dollar should lead to a more favorable pricing environment. Moreover, they may lack confidence in their ability to negotiate mutually beneficial promotional activities with retailers, and to reevaluate their commerce innovation. Lastly, they may lack confidence in their ability to maintain their leadership position in the toothpaste segment
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