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1 Stock That Can Survive When Consumers Cut Back on Spending

Despite the multi-decade high inflation, Colgate-Palmolive (CL) reported impressive revenue growth for the last quarter. Given inelastic demand for its products, the company can maintain its profitability even if consumers cut back on spending in a potentially recessionary environment. Therefore, it could be wise to invest in the stock. Read on to learn more...

Colgate-Palmolive Company (CL) manufactures and sells consumer products internationally. The company operates through two segments, Oral, Personal, and Home Care; and Pet Nutrition. The stock has gained 2.3% over the past year and 3.8% over the past nine months.

The company raised its organic sales growth guidance for the full year 2022 to 5% to 7%. Noel Wallace, Chairman, President, and CEO of CL, said, “Our focus on premium innovation, brand building and digital capabilities drove broad-based organic sales growth, with growth in every division and all four of our categories, including double-digit organic sales growth in oral care and pet nutrition.”

Despite significant headwinds related to raw materials and the broader macro environment, the company delivered solid second-quarter results, demonstrating the effectiveness of its strategies. Moreover, since CL’s business is non-cyclical, it could stay afloat even if consumer spending takes a hit due to the potential recession.

Here is what could shape CL’s performance in the near term:

Latest Developments

CL plans to purchase three dry pet food manufacturing plants in the U.S. from Red Collar Pet Foods for $700 million to support the global growth of its Hill’s Pet Nutrition business. The plants in Orangeburg, South Carolina; Clinton, Oklahoma; and Washington Court House, Ohio will be united into Hill’s global supply network to produce dry pet food for Hill’s Science Diet and Prescription Diet brands.

The purchase agreement includes the transfer of the approximately 350 employees involved in the dry pet food operations.

Robust Financials

For the second quarter ending June 30, 2022, CL’s net sales increased 5.3% year-over-year to $4.48 billion. Organic sales increased 9.0%, with growth in every division and all four categories. Its operating profit amounted to $884.00 million, while its net income came in at $603.00 million.

The company’s EPS came in at $0.72, marginally beating the consensus estimate of $0.71.

Strong Profitability

CL’s trailing-12-month net income margin of 10.98% is 32.2% higher than the industry average of 58.24%. In addition, its trailing-12-month gross profit margin of 58.24% is 32.2% higher than the 80.96% industry average. Also, its trailing-12-month ROE, ROC, and ROA are 4939.9%, 321.2%, and 158.9% higher than the respective industry averages.

Impressive Growth Prospects

Street expects CL’s revenues to rise 1.8% in the current quarter, 3.1% in the current year, and 3.1% next year. The company’s EPS is expected to rise 2.5% in the next quarter and 9.6% next year.

In addition, CL’s EPS is expected to rise at a 3.93% CAGR over the next five years. Furthermore, the company has an impressive earnings surprise history; it topped the consensus EPS estimates in each of the trailing four quarters.

POWR Ratings Reflect Solid Prospects

CL has an overall B grade, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CL has an A grade for Quality and a B for Stability. CL’s higher-than-industry profitability is consistent with its Quality grade. Its 0.47 beta is in sync with its Stability.

Among the 59 stocks in the C-rated Consumer Goods industry, CL is ranked #11.

Beyond what I stated above, we have graded CL for Growth, Value, Sentiment, and Momentum. Get all CL ratings here.

Bottom Line

CL’s robust revenue growth despite various macroeconomic headwinds reflects the company’s ability to remain resilient amid a slowing economy. Also, its higher-than-industry profitability and impressive growth prospects make it a solid buy right now.

How does Colgate-Palmolive Company (CL) Stack Up Against its Peers?

CL has an overall POWR Rating of B, which equates to a Buy. Check out these other stocks within the Consumer Financial Services industry with A (Strong Buy) ratings: Mannatech, Incorporated (MTEX), Ennis, Inc. (EBF), and Société BIC SA (BICEY).

CL shares rose $0.26 (+0.32%) in premarket trading Tuesday. Year-to-date, CL has declined -3.14%, versus a -9.03% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.


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