Colgate’s Valuation Multiple Is Higher Compared to Most Peers
What Led Colgate's Earnings to Drop 5% in 1Q16?
Relative valuation
Colgate-Palmolive (CL) and Clorox (CLX) are trading at higher valuations relative to the S&P 500 Index (IVV) (SPY) (VOO) and the Dow Jones Industrial Average (DIA). Colgate-Palmolive is trading at a PE (price-to-earnings) multiple of 24.9x forward earnings. Clorox is trading at a PE multiple of 25.3x forward earnings. In comparison, the S&P 500 Index and the Dow Jones Industrial Average are trading at forward PE multiples of 17.5x and 16.4x, respectively. All of the valuations are as of May 4, 2016.
Valuation of peers
Colgate-Palmolive’s peers include Procter & Gamble (PG) and Kimberly-Clark (KMB). They are trading at higher PE multiples of 21.2x and 20.7x, respectively, compared to the S&P 500 Index. However, PG and KMB are trading lower than Colgate.
Colgate’s continued growth depends on the success of its existing products as well as the successful identification, development, and launch of innovative new products and line extensions. Apart from Colgate, peers like P&G, Unilever (UL), and KMB also focus on providing goods of superior quality and value to its customers around the world.
Brand penetration
A Kantar report said that emerging, or fast growth, markets are where 85% of the population lives. That’s a prime reason Colgate is looking at these markets for future upside in sales. Colgate reaches more than half of the world’s households while other brands like Coca-Cola (KO) still don’t penetrate the majority of households.
The company continues to focus on successful pricing and margin planning with significant consumer engagement to build brand reputation. In addition, Colgate aims for increased commercial investment in 2016 with retail partners at a retail level. The company is working hard to provide value at all price points. For example, in India, toothpaste prices are as low as $0.05 while they are as high as $5 in other places. The company is also extending its reach through digital media, especially in Latin America.
To learn more about Colgate’s business, please read A Must-Know Business Overview of Colgate-Palmolive .
For more industry updates and analysis, please visit our Consumer Products page.
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