What Colgate’s Valuation Multiple Could Mean for 2016

Will Colgate's Leadership Shuffle Mean More Progress to Come?

(Continued from Prior Part)

Relative valuation versus

Colgate-Palmolive (CL) and Clorox (CLX) are trading at higher valuations relative to the S&P 500 Index (IVV) (SPY) (VOO) and the Dow Jones Industrial Average (DIA). The company is trading at a PE (price-to-earnings) multiple of 25.7x forward earnings.

By comparison, Clorox is trading at a PE multiple of 25.4x forward earnings, whereas the S&P 500 Index and the Dow Jones Industrial Average are trading at forward PE multiples of 17.5x and 16.3x, respectively. (All these valuations are as of March 30, 2016.)

Colgate-Palmolive peers include Procter & Gamble (PG) and Kimberly-Clark (KMB), which are trading at PE multiples of 22.0x and 22.9, respectively—higher than the S&P 500 Index but lower than Colgate.

Identification and development

Colgate’s continued growth depends on the success of its existing products as well as on its successful identification, development, and launches of innovative new products and line extensions. Apart from Colgate, peers like P&G, Unilever (UL), and KMB also focus on providing goods of superior quality and value to its customers around the world.

Colgate’s global growth and efficiency program is on track, and these are ongoing funding-the-growth programs. The company’s innovation pipeline is full with many products and initiatives. For example, in North America, CL plans to launch premium-priced Colgate Enamel Health Mineral Repair toothpaste with an accompanying mouthwash and whitening toothbrush.

Emerging markets

Kantar’s report cited that emerging or fast-growth markets are where 85% of the population lives. That’s a prime reason Colgate is looking at these markets for a future upside in sales. Colgate reaches more than half the world’s households, while other brands, including the Coca-Cola Company (KO), still do not penetrate a majority of households. Still, the recent rise in disposable income in emerging markets, especially in India, is fueling a change in the purchasing habits for consumer staples (XLP) products.

For more on Colgate’s business, check out the Market Realist series A Must-Know Business Overview of Colgate-Palmolive . For more industry updates and analysis, please visit our Consumer Products page .

Browse this series on Market Realist:

• Part 1 - Colgate Announces Eventual Successors, Stock Reacts

• Part 2 - Key Takeaways from Colgate’s Update at Investor Conference

• Part 3 - Behind the Rise in Colgate’s 4Q15 Gross Margin, after 3-Year Plateau