Colgate in Neutral Lane - Analyst Blog

We maintain our long-term ‘Neutral' recommendation on Colgate-Palmolive Company (CL) with a target price of $81.00 per share. Moreover, the company has a Zacks #3 Rank, implying a short-term ‘Hold' rating on the stock. 

New York City-based Colgate-Palmolive Company is a global consumer products manufacturer with a distribution network spanning 200 countries. Colgate-Palmolive is the industry leader in oral care and commands market-leading positions in many personal care product categories. 

Furthermore, a strong portfolio of globally recognized brands, including Colgate, Palmolive, Mennen, Softsoap, Irish Spring, Protex, Sorriso, Kolynos, Elmex, Ajax and Axion provides a competitive advantage to the company and strengthens its dominant position in the market. 

Moreover, the company follows a closely defined business strategy to increase its leadership positions in key product categories. The product categories are further prioritized based on their capacity for optimum utilization of the company's core competencies and strong global equities to deliver sustainable long-term growth. 

Additionally, in an effort to drive growth, Colgate seeks to capture significant opportunities by identifying and targeting consumer needs within its core categories. The company further focuses on innovation and deployment of valuable consumer and shopper insights for developing successful new products regionally, which are rolled out on a global basis. 

Above all, Colgate has a consistent track record of returning cash to shareholders in the form of regular dividends. The company utilized cash reserves of $889.0 million, $981.0 million and $1,142.0 million toward dividend payments in 2008, 2009 and 2010, respectively. 

However, the competitive dynamics in the household products industry have drastically changed from the earlier focus on cost savings and manufacturing efficiencies to gaining market share. Therefore, costs have increased due to a rise in marketing and promotional expenditures, thereby weighing upon bottom-line growth. 

Besides, Colgate operates in an intensely competitive environment. The resurgence of archrival Procter & Gamble Company (PG) has signaled new challenges. The company also faces intense competition from other domestic personal care products companies such as Clorox Corporation (CLX) and Church & Dwight Company Inc. (CHD). 

Global competitive conditions have also intensified, and Colgate is facing strong competition in China, Russia, India, Hong Kong, Brazil and Mexico. Consequently, risk associated with operating in such a competitive environment may undermine the company's future operating performance.
 
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