As a leading personal and health care product manufacturer, Colgate-Palmolive Company (CL) has witnessed substantial growth in 2020, primarily due to COVID-19. As maintaining proper hygiene is the key to avoid catching the virus, the demand for hygiene products increased significantly since the onset of the pandemic. Also, the initial lockdown imposition caused panic purchases by most people all over the world, driving the demand for CL’s products even further. As the world fears a second wave of coronavirus, CL is expected to witness surging demand once again, driving its revenue and prices higher in the upcoming months.

CL’s innovative business model and its incremental category growth allowed it to gain 24% year-to-date. This impressive performance combined with several other factors has helped CL earn a “Strong Buy” rating in our proprietary ratings system.

Here’s how our proprietary POWR Ratings system evaluates CL:

Trade Grade: A

CL is currently trading above its 50-day and 200-day moving averages of $78.88 and $74.14, respectively, indicating that the stock is in an uptrend. The stock gained 10.9% over the past three months, reflecting solid short-term bullishness.

CL’s net sales increased 5.5% year-over-year to $4.15 billion in the third quarter that ended September 2020. This impressive revenue performance was primarily driven by the company’s elevated demand in personal care and home care related to the virus. Net income increased 20.8% year-over-year to $698 million, while EPS increased 20.9% from the prior-year quarter to $0.81.

Earlier this year, CL introduced a first-of-its kind recyclable toothpaste tube, making this technology available to third parties.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade takes into account, CL is pretty well positioned. The stock is currently trading just 0.3% below its 52-week high of $85.64.

The company’s net revenue grew at a CAGR of 1.9% over the past three years, while net income increased at a CAGR of 5.3% over this period. Also, EPS increased at a CAGR of 6.5% over the past three years. This can be attributed to the consistent developments of steady growth in consumer base and rapid expansions made by the company.

Peer Grade: A

CL is currently ranked #4 out of 34 stocks in the Consumer Goods industry. Other popular stocks in the industry are Procter & Gamble Company (PG), Unilever NV (UN) and Chewy, Inc. (CHWY).

While CHWY beat CL by gaining 117.2% year-to-date, PG and UN have returned 18.4% and 12.1%, respectively, over this period.

Industry Rank: A

The Consumer Goods industry is ranked #18 out of the 123 StockNews.com industries. Fast moving consumer goods were in high demand during the initial months of the pandemic, with people panic purchasing goods ahead of the lockdown imposition. With fear of a “second wave” hitting the US coasts as the number of coronavirus cases are rising rapidly, further lockdowns might lead to higher demand for daily consumer products.

Overall POWR Rating: A (Strong Buy)

CL is rated a “Strong Buy” due to its impressive past performance, short-and-long-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our POWR Ratings system.

Bottom Line

CL is well positioned to soar in the upcoming months despite gaining 24% year-to-date, based on its solid business growth, promising earnings and revenue outlook, and favorable analyst sentiment.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is pretty impressive for CL. It has an average broker rating of 1.62, indicating favorable analyst sentiment. Out of 19 Wall Street analysts that cover the stock, 10 rate it a “Strong Buy”. The consensus EPS estimate of $0.76 for the quarter ending December 2020 indicates a 4.1% improvement year-over-year. Moreover, CL has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $4.12 billion for the quarter ending December 2020 indicates 2.6% growth from the same period last year.

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CL shares were trading at $85.57 per share on Monday afternoon, up $0.21 (+0.25%). Year-to-date, CL has gained 27.26%, versus a 13.66% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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