Colgate-Palmolive Company (CL, Financial) could deliver further stock price growth, in my view, following its 16% rise in the past year.
The consumer goods company is investing in its website, improving its sustainability credentials and aiming to become more efficient.
Sustainable focus
The company is increasing its investment in sustainable products to resonate with consumers who are increasingly environmentally and socially conscious. It has reported strong customer demand for its Bamboo toothbrush and Charcoal toothpaste products, which were launched in fiscal 2019.
In addition, Colgate-Palmolive launched the world’s first recyclable toothpaste tube in fiscal 2019 and was awarded its highest ever recognition from the Dow Jones Sustainability Index. This could resonate with its customers at a time when 88% of consumers say they would be more loyal to a company that supports social and environmental issues. It may also broaden the appeal of the company’s products to a wider range of consumers than in the past.
Online opportunities
The company is investing in increasing its direct-to-consumer sales opportunities. For example, it introduced a new subscription-based service for its Hill’s to Home veterinary products in the fourth quarter. This contributed to the company’s 30% rise in e-commerce sales in fiscal 2019, and could lead to it experiencing a wider economic moat due to it having a direct relationship with its customers.
Colgate-Palmolive is using an increasing amount of data when deciding which specific changes it should make to improve its website. It is then sharing its learnings across all of its business segments and geographies. This could improve its return on investments and increase the speed at which it is able to adapt to technological changes in the fast-growing online retail sector.
Investing for growth
Colgate-Palmolive’s acquisitions of skin care specialist Filorga and oral care company Hello in the second half of fiscal 2019 could catalyze its financial performance. They strengthen the company’s brand portfolio and increase its exposure to products that occupy higher price points.
Hello’s products also have a focus on sustainability, which could resonate with Colgate-Palmolive’s customers and fit in with its overall strategy of becoming more socially and environmentally conscious.
Possible threats
The business experienced challenging trading conditions in Mexico, Brazil and India in its fiscal 2019 fourth quarter. They could continue in the 2020 fiscal year, and may impact negatively on its financial performance.
In addition, Colgate-Palmolive stated in its fourth quarter results that it expects to experience a negative impact on its financial performance from the spread of the new coronavirus that emerged in China in 2020. This could cause investor sentiment towards the company to decline as investors price in the prospect of further cases of coronavirus and the potential for it to disrupt Colgate-Palmolive’s global supply chain.
The business is seeking to reduce its costs and become more productive. For example, it plans to use a greater amount of automation in its distribution centers, and it will standardize the processes used across its various markets to create a simpler business with lower costs.
This strategy contributed to the company reporting a fall in its administrative costs in the fourth quarter. Its costs as a percentage of revenue declined by 0.7% due to its productivity savings and lower transport costs.
Outlook
Market analysts forecast that the company will produce a 9% rise in its earnings per share in the 2020 fiscal year, followed by further growth of 6% in fiscal 2021. Its price-earnings ratio of 27 may not be cheap, but its growth strategy could catalyze its stock price in the upcoming years.
Disclosure: the author has no position in any stocks mentioned.
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