Colgate-Palmolive Co. (CL) has had a stellar long-term growth record. The company's tight financial controls and history of new product innovations coupled with efforts to enhance shareholder value through share repurchases and dividend increases support a positive long-term view on the stock. However, rising raw material/fuel costs and the costs related to the implementation of the restructuring plan remain concerns.
Colgate-Palmolive stock has traded in a P/E multiple range of 18 to 27 over the last four years. However, during the last time of earnings de-acceleration and a corporate restructuring in the mid-1990s, Colgate's stock traded at a P/E in the low 20 s. The stock is currently trading at a P/E multiple of 20.8, which is in the middle quartiles of the historical range. Positive earning surprises along with savings from the company's restructuring and business-building plan should support future growth.
In addition, the company remains the clear market leader in the oral care segment. With an array of new products scheduled to be launched in 2008, the company should deliver strong results. However, aggressive advertising expenditures and higher input costs should continue to constrain near-term growth. Therefore, the stock is rated a Hold. The target price of $80.25 is based on a 22 P/E on 12-month trailing earnings.
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