Personal Products Stocks

Colgate-Palmolive Co Valuation – January 2016 Update $CL

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Colgate-Palmolive Co (CL) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Colgate-Palmolive Company (Colgate) is a consumer products company, whose products are marketed in more than 200 countries and territories throughout the world. The Company operates in two product segments: Oral, Personal and Home Care, and Pet Nutrition. The Oral, Personal and Home Care product segment is operated through five geographic segments: North America, Latin America, Europe/South Pacific, Asia and Africa/Eurasia. The Company’s oral care products include Colgate Total; Colgate Sensitive Pro-Relief; Colgate Max Fresh; Colgate Optic White and Colgate Luminous White toothpastes, among others. The Company sells its personal care products under the Palmolive, Protex and Softsoap brands. The Company, through its Hill’s Pet Nutrition segment (Hill’s), manufactures pet nutrition products for dogs and cats.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CL

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $57,698,999,975 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.29 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 60.09% Pass
6. Moderate PEmg Ratio PEmg < 20 25.52 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 228.68 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.29 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 5.69 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

CL value chart January 2016

EPSmg $2.52
MG Growth Estimate 2.29%
MG Value $32.95
Opinion Overvalued
MG Value based on 3% Growth $36.53
MG Value based on 0% Growth $21.41
Market Implied Growth Rate 8.51%
Current Price $64.30
% of Intrinsic Value 195.13%

Colgate-Palmolive Co does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.19 in 2011 to an estimated $2.52 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.51% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Colgate-Palmolive Co (CL)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

CL charts January 2016

Net Current Asset Value (NCAV) -$9.06
Graham Number $4.14
PEmg 25.52
Current Ratio 1.29
PB Ratio 228.68
Dividend Yield 2.30%
Number of Consecutive Years of Dividend Growth 20

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $5,089,000,000
Total Current Liabilities $3,937,000,000
Long-Term Debt $6,554,000,000
Total Assets $13,563,000,000
Intangible Assets $3,506,000,000
Total Liabilities $13,308,000,000
Shares Outstanding (Diluted Average) 906,900,000

Earnings Per Share History

Next Fiscal Year Estimate $2.72
Dec2014 $2.36
Dec2013 $2.38
Dec2012 $2.57
Dec2011 $2.47
Dec2010 $2.16
Dec2009 $2.19
Dec2008 $1.83
Dec2007 $1.60
Dec2006 $1.23
Dec2005 $1.22
Dec2004 $1.17
Dec2003 $1.23
Dec2002 $1.10
Dec2001 $0.95
Dec2000 $0.85
Dec1999 $0.74
Dec1998 $0.65
Dec1997 $0.57
Dec1996 $0.49

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.52
Dec2014 $2.41
Dec2013 $2.41
Dec2012 $2.36
Dec2011 $2.19
Dec2010 $1.96
Dec2009 $1.78
Dec2008 $1.52
Dec2007 $1.34
Dec2006 $1.20
Dec2005 $1.17
Dec2004 $1.12
Dec2003 $1.05
Dec2002 $0.93
Dec2001 $0.81
Dec2000 $0.72
Dec1999 $0.60

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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