Stock of the Day

January 18, 2023

Colgate-Palmolive (CL)

$90.29
+$0.14 (+0.2%)
Market Cap: $73.17B

About Colgate-Palmolive

Colgate-Palmolive Company, together with its subsidiaries, manufactures and sells consumer products in the United States and internationally. It operates through two segments: Oral, Personal and Home Care; and Pet Nutrition. The Oral, Personal and Home Care segment offers toothpaste, toothbrushes, mouthwash, bar and liquid hand soaps, shower gels, shampoos, conditioners, deodorants and antiperspirants, skin health products, dishwashing detergents, fabric conditioners, household cleaners, and other related items. This segment markets and sells its products under various brands, which include Colgate, Darlie, elmex, hello, meridol, Sorriso, Tom's of Maine, Irish Spring, Palmolive, Protex, Sanex, Softsoap, Lady Speed Stick, Speed Stick, EltaMD, Filorga, PCA SKIN, Ajax, Axion, Fabuloso, Murphy, Suavitel, and Soupline to a range of traditional and eCommerce retailers, wholesalers, and distributors. It includes pharmaceutical products for dentists and other oral health professionals. Its Pet Nutrition segment offers pet nutrition products for everyday nutritional needs under the Hill's Science Diet brand; and a range of therapeutic pet products to help nutritionally support dogs and cats in different stages of health under the Hill's Prescription Diet brand. This segment markets and sells its products through pet supply retailers, veterinarians, and eCommerce retailers. Colgate-Palmolive Company was founded in 1806 and is headquartered in New York, New York.

Colgate-Palmolive Bull Case

Here are some ways that investors could benefit from investing in Colgate-Palmolive:

  • The company recently reported earnings per share of $0.91, exceeding analysts' expectations, which indicates strong financial performance and potential for growth.
  • Colgate-Palmolive has a high return on equity, suggesting effective management and profitability, which can be attractive to investors looking for solid returns.
  • The company has initiated a significant stock repurchase program, allowing for the buyback of $5.00 billion in shares, signaling confidence in its own valuation and potentially increasing shareholder value.
  • Colgate-Palmolive has increased its quarterly dividend to $0.52 per share, reflecting a commitment to returning value to shareholders, which can be appealing for income-focused investors.
  • The current stock price is around $102, which is within a reasonable range for investors looking to enter the market with a well-established company.

Colgate-Palmolive Bear Case

Investors should be bearish about investing in Colgate-Palmolive for these reasons:

  • The company's revenue has declined by 3.0% compared to the same quarter last year, which may indicate challenges in maintaining sales growth.
  • Despite beating earnings estimates, the revenue reported was slightly below expectations, which could raise concerns about future performance.
  • The dividend payout ratio is currently at 58.76%, which, while sustainable, may limit the company's ability to reinvest in growth opportunities.
  • Analyst ratings are mixed, with a consensus rating of "Hold," suggesting that some investors may be cautious about the stock's potential for significant appreciation.
  • Market conditions and competition in the consumer products sector could pose risks to Colgate-Palmolive's market share and profitability moving forward.

Conagra Brands: Another Reason To Go Long Consumer Staples In 2023

Written By Thomas Hughes on 1/5/2023

Conagra Brands: Another Reason To Go Long Consumer Staples In 2023

The Consumer Staples (NYSEARCA: XLY) sector has been a go-to sector for the last several years and Conagra Brands (NYSE: CAG) has just proven why it and they should still be on investor’s radars. The company is proving to be resilient in the face of rising costs and uncertain economic conditions. It is offering not only a value relative to its peers but a higher-than-average dividend that qualifies as “high yield” relative to the S&P 500 (NYSEARCA: SPY).

The takeaway here is that Conagra Brands just beat estimates on the top and bottom lines, showed tremendous pricing power and issued favorable guidance that has the market on the move and ready to tackle another new all-time high. 

Conagra Brands Guidance Has Shares At New Highs 

The Q2 results and guidance have price action in Conagra brands up more than 2.0% in premarket trading and at a new high. This is an almost 6-year high that dates back to well before the pandemic began, so is a very noteworthy move. The strength is driven by an 8.2% increase in revenue that outpaced the consensus by 100 basis points and was coupled with an increase in margins.

Revenue strength was driven by gains in all segments, led by a 14% increase in the retail snacks business, which is good news for Pepsico (NASDAQ: PEP) when it reports. On an organic basis, sales are up 8.6% and offset by a 0.3% FX-related headwind. 

The best news is in the margin. The company increased its adjusted gross and operating margins to levels above the Marketbeat.com consensus estimates. The AGM expanded by 310 and the AOP by 237 to drive a 26.6% increase in the adjusted earnings. Adjusted earnings of $0.86 are up 26.6% YOY, and this strength is expected to continue into the 2nd half of the fiscal year. 

The guidance is moving this market as it includes increasing all metrics. The company is now expecting revenue growth from 7% to 8%, with an operating margin of 15.3% to 15.6%. This should drive adjusted EPS of $2.60 to $2.70, more than $0.10 above the consensus estimate at the low end of the range. Assuming the company’s momentum continues, this guidance may also be too low. 

Conagra Brands Is A High-Yield Value Stock 

Conagra Brands is offering value in the Consumer Staples trading at only 15X its earnings. This compares to the highest-valued stocks like Hormel (NYSE: HRL), The Clorox Company (NYSE: CLX) and Lamb Weston (NYSE: LW), which trade in a range of 25X to 35X. At the same time, the stock is yielding about 3.4%, which is among the highest yields in the group, and it is relatively safe.

The company’s leverage ratio is a low 0.8X, and it has a 4.2X coverage ratio, so there is cash flow on the books to cover the payment and extend the 3-year history of dividend increases to 4 and 5 years at the least.  Kraft Heinz (NASDAQ: KHC) is the only stock in the group with a higher yield and comparable value and it, too, is well-exposed to the retail snacks business. 

The analysts have yet to come out with commentary but rest assured it is on the way. The trend in sentiment is bullish so investors might expect to see the sentiment continue to firm and the consensus price target rise. As it is, the analysts have the stock set at a Firm Hold/Weak Buy with a price target now below the stock's trading level (but trending higher). 

The Technical Outlook: Conagra Brands Breaks Out 

Conagra Brands is in the midst of a breakout that is best viewed with monthly data. The 3.3% price gain has it trading near $40 and at the highest since mid-2017. Assuming the market follows through on the signals and the news, this stock should at least retest the all-time highs if not break out to a new one. 

Conagra Brands: Another Reason To Go Long Staples In 2023

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