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CL – Market expectations are for Uniform ROA to reach new peaks, but management may be concerned about pricing, cost savings, and the premium business

July 20, 2021

  • Colgate-Palmolive Company (CL:USA) currently trades above recent averages relative to UAFRS-based (Uniform) earnings, with a 24.4x Uniform P/E. At these levels, the market is pricing in bullish expectations for the firm, but management may be concerned about pricing increases, cost saving initiatives, and their premium business growth.
  • Specifically, management may lack confidence in their ability to execute 2021 growth priorities, implement cost saving initiatives, and improve advertising spend efficiency. Furthermore, they may have concerns about persisting pandemic-related headwinds in emerging markets, their dividend and share buyback strategy, and the sustainability of FX tailwinds. Moreover, management may lack confidence in their ability to sustain premium products growth, continue raising prices in Europe and Latin America, and leverage innovations to offset market volatility. Finally, they may be concerned about increasing logistics costs, sales growth in Europe, and potential government actions to stem a resurgence of COVID-19.