Bank Of America Believes Colgate Earnings Could Soon Grow At A Double-Digit Pace

Colgate-Palmolive Company CL has significant exposure to currency and macro volatility. With external factors becoming more stable, the company appears poised for double-digit EPS growth, Bank Of America’s Olivia Tong said in a report. She upgraded the rating on Colgate from Neutral to Buy, while raising the price objective from $78 of $80.

Since Colgate is among the world’s most recognizable consumer brands, with more than 60 percent of households worldwide using Colgate products, the company has disproportionately high exposure to the recent currency and macro volatility, which exerted pressure on gross margins, keeping them flat from 2013-2015, analyst Tong noted.

External Factors Stabilizing

“While the potential for a resurgence of volatility of course exists, FX has stabilized, creating a more sustainable backdrop for margin improvement, with EM growth also leveling out in the MSD-HSD range, the high-end vs peers,” Tong wrote.

External pressures have become “more manageable,” providing support to Colgate’s return to solid gross margin improvement, which the company is targeting at 65 percent. Moreover, Colgate has a best-in-class growth profile. All these factors should enable the company to return to double-digit EPS growth, the analyst mentioned.

Although currency headwinds continue to weighing on results, highlighted by the expectation of flat 2016 earnings, Colgate is among “the most consistent performers in staples, helped by its dominant share positions, which offer insulation from challenged markets and critical pricing power,” Tong added.

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