Personal Products Stocks

Colgate-Palmolive Co Valuation – March 2019 #CL

Company Profile (excerpt from Reuters): Colgate-Palmolive Company (Colgate), incorporated on July 25, 1923, is a consumer products company. 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, which include North America, Latin America, Europe, Asia Pacific and Africa/Eurasia. It is engaged in oral care business with toothpaste and manual toothbrush brands around the world. The Company’s oral care products include Colgate Total, Colgate Sensitive Pro-Relief, Colgate Max Fresh, Colgate Maximum Cavity Protection plus Sugar Acid Neutralizer, Colgate Optic White and Colgate Luminous White toothpastes, Colgate 360 degree and Colgate Slim Soft manual toothbrushes and Colgate Optic White, Colgate Total and Colgate Plax mouthwashes. Colgate’s Oral Care business also includes pharmaceutical products for dentists and other oral health professionals.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CL – March 2019

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 $57,098,959,614 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.14 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 7.02% Fail
6. Moderate PEmg Ratio PEmg < 20 26.06 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 291.66 Fail
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 1.14 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 14.06 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

EPSmg $2.54
MG Growth Estimate 3.00%
MG Value $36.88
Opinion Overvalued
MG Grade C
MG Value based on 3% Growth $36.88
MG Value based on 0% Growth $21.62
Market Implied Growth Rate 8.78%
Current Price $66.27
% of Intrinsic Value 179.68%

Colgate-Palmolive Company does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.12 in 2015 to an estimated $2.54 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.78% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Colgate-Palmolive Company revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.66 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.06, which was below the industry average of 62.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.42.

Colgate-Palmolive Company receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.42
Graham Number $0.00
PEmg 26.06
Current Ratio 1.14
PB Ratio 291.66
Current Dividend $1.66
Dividend Yield 2.50%
Number of Consecutive Years of Dividend Growth 20

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,793,000,000
Total Current Liabilities $3,341,000,000
Long-Term Debt $6,354,000,000
Total Assets $12,161,000,000
Intangible Assets $4,167,000,000
Total Liabilities $11,964,000,000
Shares Outstanding (Diluted Average) 867,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.67
Dec2018 $2.75
Dec2017 $2.28
Dec2016 $2.72
Dec2015 $1.52
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.54
Dec2018 $2.43
Dec2017 $2.26
Dec2016 $2.27
Dec2015 $2.12
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

Recommended Reading:

Other ModernGraham posts about the company

Colgate-Palmolive Co Valuation – June 2018 $CL
Colgate-Palmolive Co. Valuation – April 2017 $CL
Colgate-Palmolive Co Valuation – January 2016 Update $CL
32 Companies in the Spotlight This Week – 12/6/14
Colgate-Palmolive Annual Valuation – 2014 $CL

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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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