Colgate-Palmolive's Downside Risks Have Subsided, According To Goldman Sachs

Colgate-Palmolive Company CL shares have been on an upswing since January 2016. Goldman Sachs' Jason English upgraded the rating for the company from Sell to Neutral, while raising the price target from $62 to $75. Estimates have been raised to reflect the 1Q results and expectations of sustained gross margin expansion.

With consensus expectations down 14 percent for FY16 and 13 percent for FY17 over the last year, there seems to be limited downside risk remaining, analyst Jason English commented.

On the other hand, shares have risen 3.6 percent, versus a 6.3 percent gain for the XLP and a 1.7 percent decline in the S&P. “Valuation, as a result, is more stretched, but we no longer see a catalyst for re-rating with consensus estimates now seemingly achievable,” English wrote.

Company Returns To Its Long-term Algorithm

“CL’s earnings visibility has improved of late as FX stabilizes, commodities remain benign, and the company’s volume growth ticked higher. Overlay productivity and CL’s gross margin trajectory looks solid, especially in context of its shortfalls on this measure over the past two years,” the analyst said.

The company seems poised to achieve top-line forecasts, despite toughening comps ahead. Moreover, Colgate-Palmolive should be able to meet expectations as it returns to its long-term algorithm, unless there is a major reversal of the USD or some other unforeseen event, English noted.

The EPS estimates for FY16, FY17 and FY18 have been raised from $2.78 to $2.81, from $3.01 to $3.04 and from $3.22 to $3.26, respectively.