Colgate Stock Sees Strong Momentum Pre-Q4 Earnings: Time to Invest?

Core Viewpoint - Colgate-Palmolive Company (CL) is anticipated to report growth in both revenue and earnings for the fourth quarter of 2024, with revenue expected to reach $5 billion, reflecting a 1.2$5 billion, up 1.2% from the same quarter last year [1]. - The consensus estimate for earnings is 89 cents per share, suggesting a growth of 2.3% year-over-year [2]. Earnings Performance - In the last reported quarter, Colgate's earnings exceeded the consensus estimate by 3.4%, with an average earnings surprise of 3.8% over the trailing four quarters [2]. Earnings Prediction Model - The current Earnings ESP for Colgate is -0.91%, and it holds a Zacks Rank of 3 (Hold), indicating that the model does not predict a definitive earnings beat this season [3]. Business Momentum and Growth Drivers - Colgate's fourth-quarter performance is expected to benefit from strong business momentum, pricing strategies, and productivity initiatives, with a focus on balanced organic sales growth across all categories [4]. - The company is projected to achieve organic sales growth of 6.5%, with significant improvements in various regions, including 12% in Latin America and 9% in Europe [5]. Gross Margin and Profitability - The adjusted gross margin is expected to expand by 210 basis points to 61.7%, with a 5.6% year-over-year increase in adjusted gross profit [7]. - Colgate has been experiencing a sequential rise in gross margin due to strong pricing and revenue growth management initiatives [6]. Challenges and Headwinds - The company faces challenges such as volume softness in China and lower private label growth, which may slightly impact top-line performance [8]. - Higher raw material costs and inflationary foreign exchange pressures are also expected to offset some gross margin growth [9]. SG&A Expenses - SG&A expenses are anticipated to rise by 6.9% year-over-year, reaching 38.2% of sales, reflecting continued investment in digital and analytics capabilities [10]. Stock Performance and Valuation - Colgate's shares have increased by 8.7% over the past year, outperforming the broader industry growth of 0.9% but underperforming the S&P 500 index, which grew by 24.8% [11]. - The stock trades at a forward P/E multiple of 24.04X, higher than the industry average of 21.43X and the S&P 500's average of 22.64X, indicating a relatively pricey valuation [14].