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Colgate Soars to a New High

Zacks Equity Research

The shares of Colgate-Palmolive Co. (CL) reached a new 52-week high of $118.97 on Tuesday, Apr 2, gaining momentum from the company’s consistent performance as well as an encouraging outlook. This global consumer products company eventually closed at $118.90, recording a healthy year-to-date return of 11.8%. Average volume of shares traded over the last 3 months stands at approximately 1,735K.

Apart from Colgate, other stocks in the retail space that touched all-time highs on the same trading day are Constellation Brands Inc. (STZ), Avis Budget Group Inc. (CAR) and Archer Daniels Midland Company (ADM) reaching $49.22, $29.53 and $34.28, respectively.

An impressive earnings performance, favorable fiscal 2013 outlook, expanding profit margins, healthy financial position and a decent dividend yield are the key strengths of the stock that enabled it to attain a new high. Moreover, the stock currently trades at a forward P/E of 20.8x, a slight premium from the peer group average of 20.6x.

With respect to earnings surprises, Colgate has either met or surpassed the Zacks Consensus Estimate over the last several quarters, most recently topping it by 0.71% in the fourth quarter of fiscal 2012.

On Jan 31, Colgate posted impressive quarterly results with healthy earnings and sales comparisons for the fourth quarter of fiscal 2012. The company posted adjusted earnings of $1.41 per share that came a penny ahead of the Zacks Consensus Estimate and jumped 8.5% year over year.

Global sales of $4,286 million increased 2.7% from the prior-year quarter level of $4,172 million, primarily benefiting from a 2.5% upside in pricing and 1.5% increase in global unit volumes (excluding divested businesses), partially offset by a negative impact of 1.5% from foreign exchange.

The company’s adjusted gross profit margin expanded 90 basis points (bps) to 58.6%, driven by increased prices as well as cost savings from the company’s funding-the-growth initiatives.

Looking ahead, Colgate-Palmolive anticipates its growth momentum to continue in fiscal 2013 with gross margin expansion and double-digit growth in earnings per share. However, lingering macroeconomic concerns in Venezuela will remain a drag on this Zacks Rank #4 (Sell) stock’s financials in the coming quarters.

Colgate is also known for its shareholder friendly moves. The company has been regularly increasing its dividend every year since 2001and presently is paying an annual cash dividend of $2.48. This currently yields a solid 2.1%, while the company has a payout ratio of 47%.

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