Colgate-Palmolive Set To Outperform In 2018, According To Macquarie

Colgate-Palmolive Company CL isn't necessarily the most exciting name for investors to talk about, but heading into 2018 the case can be made to be buyers of the stock.

The Analyst

Macquarie Research's Caroline Levy upgraded Colgate-Palmolive's stock from Neutral to Outperform with a price target boosted from $71 to $81.

The Thesis

Heading into 2018, Colgate-Palmolive's business is at a "turning point" for multiple reasons, Levy said in a note, such as improvement in the U.S. business (30 percent of total sales), foreign exchange rates now neutral if not positive, and the company will "lap" one-time events (i.e., earthquake and hurricanes in Mexico and the Caribbean) across the world.

Colgate-Palmolive is boosting its advertising spend after a heavy schedule of new product launches throughout the bottom half of 2017, Levy said. This should help support sales growth in 2018 while the company's 31 percent tax rate is "well above" the average for a global company and should fall under the proposed tax reform plan.

Colgate-Palmolive's high margins and high returns makes it a potential takeover candidate although it's impossible to know if a deal will happen, Levy added. Nevertheless, the company is an appealing target which would "keep upward pressure" on the stock so long as chatter remains ongoing.

Price Action

Shares of Colgate-Palmolive gained more than 1.7 percent Tuesday.

Related Links:

3 Most Likely Suitors For Colgate-Palmolive, In Jefferies' View

Morgan Stanley Catches Flack For Colgate-Palmolive Upgrade