Analysts Turn Bearish On Colgate-Palmolive

Colgate-Palmolive Company CL reported Friday its third-quarter results, highlighted by a worse-than-expected sales growth and prompted multiple firms to downgrade the stock.

The Analysts

JPMorgan's Andrea Teixeira downgraded Colgate-Palmolive from Neutral to Underweight with a price target lowered from $61 to $54.

SunTrust Robinson Humphrey's William Chappell, Jr. downgraded Colgate-Palmolive from Buy to Hold with a price target lowered from $80 to $65.

JPMorgan

There's reason to be bearish into the fourth quarter, Teixeira said in a note. Specifically, management's guidance for the quarter implies a low-single-digit organic sales growth but this is only likely to play out if pricing can improve sequentially. However, management acknowledged it's looking to be more promotional in the fourth quarter to stop market share loss. It's unclear if volume challenges in China and Brazil can improve in the fourth quarter.

The company attempted to downplay its 130 basis point year-over-year dollar market share decline by highlighting foreign exchange headwinds and highlighting its market share in terms of volume. Volume share was still lower by 30 basis points in the quarter, however, which implies the company faces increasing competition globally.

Teixeira said the stock's discounted valuation is justified and could actually expand due to ongoing growth deceleration which puts into question the company's long-term outlook.

SunTrust

The bullish case for Colgate-Palmolive's stock was based on three factors, Chappell said in a note: favorable comparisons in developed markets, improving trends in emerging economies and favorable foreign exchange trends.

Exiting Colgate-Palmolive's report, Chappell said it's clear only the first thesis played out as the emerging market (50 percent of sales) showed signs of continued struggles and foreign exchange rates has now become unfavorable for multinationals. The company isn't the only multinational to struggle globally but it "does seem to be more acutely impacted" versus its global peers.

Management's game plan of increasing marketing spend and waiting for emerging markets to improve needs to show signs of success before investors can be buyers of the stock again. As such, investors are urged to move to the sidelines for the time being.

Price Action

Shares of Colgate-Palmolive hit a new 52-week low of $59 Monday morning.

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