Colgate-Palmolive: Stability Pillar Reached Its Fair Value

Core Viewpoint - Colgate-Palmolive (CL) is a stable investment choice for income-seeking investors, characterized by steady income and low stock price volatility, despite not being a value or high-income pick [3][4][21] Business Overview - CL operates in two main segments: Oral, Personal, and Home Care, and Pet Nutrition, with a significant portion of revenue (around two-thirds) coming from non-US markets [2] - The Oral, Personal, and Home Care segment accounted for 78% of CL's revenue in Q2 2024, with Latin America being the most significant market, contributing 25% of total revenue [2] Financial Performance - The company recorded strong organic sales growth of 10.6% in the Oral, Personal, and Home Care segment, driven by a 6.5% price effect and a 4.1% volume increase, although offset by a negative foreign exchange effect of (4.8%) [5] - Latin America showed remarkable organic sales growth of 22.2%, while North America recorded 3.2%, with significant pricing power observed in Latin America [5][9] - Overall net sales increased by 5.5% in Q1-Q2 2024 compared to the same period in the previous year, supported by a positive volume effect of 3% and a pricing effect of 6.3% [5][12] Profitability and Margins - CL achieved a gross margin of 60.3% in Q1-Q2 2024, an increase of 300 basis points from the previous year, and an operating margin of 21.1%, up from 19.6% [12][10] - The company maintains solid operating margins across its segments, with Latin America and Asia Pacific showing margins of 32.9% and 28.7%, respectively [10] Dividend and Shareholder Returns - CL is recognized as a Dividend King, having increased its dividend payments for over 50 years, with a modest dividend yield of approximately 2% and a compound annual growth rate of 2.8% in dividend per share from 2019 to 2023 [4][16] - The company generated $1.67 billion in operating cash flow during Q1-Q2 2024, supporting dividend payments and share repurchases [15] Valuation Outlook - Analysts' average price target for CL is approximately $105.51, indicating limited upside potential of around 3.5% [18] - The forward-looking EV/EBITDA multiple for CL stands at 18.2x, reflecting the quality of its business compared to peers [20] Investment Position - While CL is viewed as a reliable investment, the recent stock price increase has led to a preference for reallocating capital to other opportunities with higher margins of safety [21]