Colgate-Palmolive Stock: A Consumer Staple about to Hit New Highs

Key Points

• Colgate-Palmolive Co. issued robust results and guidance driven by price increases. 
• The margin is on the mend and the analysts are raising their price targets. 
• The stock isn't cheap but the yield is attractive and sustainable growth is on the table. 

Consumer staples stocks have moved higher across verticals, Colgate-Palmolive Co. NYSE: CL included. Despite still-rising costs, these companies exhibit robust pricing power and outperform their consensus expectations. Colgate Palmolive stock's first-quarter results sparked a round of analyst activity that has it on track to hit a new all-time high soon. At least six analysts have issued new price targets with the consensus on the rise and just below the current all-time high. Assuming this trend continues, the stock should be able to move into the all-time high territory before the summer, and it may trend higher through the end of the year. 

The analyst's sentiment has also trended higher. The analysts have the stock pegged at "moderate buy" after an upgrade from Morgan Stanley earlier in the year. That firm reiterated its "overweight" rating after the first-quarter release and raised its price target to $89 compared to the $84 Marketbeat.com consensus. In their view, the sales and margin news are good, but the outlook for sustainable growth is better. 

Colgate-Palmolive Raises Guidance and Prices 

Colgate-Palmolive had a robust quarter in which double-digit price increases were sufficient to offset a 2% decline in volume to produce 8.5% top-line growth. The $4.27 billion in revenue is up 8.5% compared to last year, beating the consensus estimate by 400 basis points. The strength was driven by gains in all divisions and categories, which is expected to persist. The margin news is mixed but favorable to higher share prices overall. The increase in pricing did not fully offset rising costs but resulted in a better-than-expected margin and outperformance on the bottom line. That left adjusted EPS at 73 cents and down YOY but three cents better than expected. 

“Despite continued pressure from raw and packaging material costs during the quarter, gross profit margin improved sequentially versus fourth quarter 2022, which helped fund a 14% increase in advertising in support of our pricing and robust innovation across all categories,” Wallace said. “We expect to drive further gross margin improvement in the balance of the year through continued strong pricing and the benefits from funding the growth and other productivity initiatives.”

The guidance is mixed but reveals a market that secretly feared the worst. The company guided revenue of 3% to 6% growth, which brackets consensus on the low side and for EPS to improve. There is no specific EPS guidance, only the expectation that the margin will improve again in the second quarter and the second half of the year. 

Colgate-Palmolive Offers Some Value and Yield to Investors 

Colgate-Palmolive is not a value relative to the broad market or its peers in the consumer staples sector, but it has attractions given the sector strength and the dividend. The stock trades at 25 times its earnings, consistent with peer Proctor & Gamble NYSE: PG but well below names like Church & Dwight Co. Inc. NYSE: CHD and The Clorox Company NYSE: CLX. The dividend isn’t as high as Clorox's 2.8%, but it is respectable at 2.4%, equal to the payout with PG stock. The stock is also a Dividend King with 59 years of increases in its history, so there is an element of safety attached to the valuation.

Shares of Colgate-Palmolive are melting higher on the news. The stock is up another 1% in the current session, reaching a six-month high. The next hurdle is near $82.50; a move above that level puts it on track to hit an all-time high soon.