Bank of America Downgrades Colgate-Palmolive, Says Momentum Will Slow Next Year

The bullish case for Colgate-Palmolive Company CL can no longer be made as recent momentum is unlikely to be sustained in 2020, according to Bank of America.

The Analyst

Olivia Tong downgraded Colgate-Palmolive from Buy to Neutral with a price target lowered from $77 to $74.

The Thesis

Colgate has shown accelerated organic sales growth on a sequential basis in each of the past four quarters, Tong said in the note. However, there are signs to believe this strong growth can't be sustained through 2020. Specifically, management's 2019 guidance of 3% to 4% organic growth already implies a sequential slowdown in the final quarter of the year.

Looking forward to 2020, Tong said a sustained organic growth rate of around 3% is likely but living up to 2019's performance will be a difficult task. Management could be put in a position to further invest in its business as "sales growth will come at a cost."

Meanwhile, Colgate's earnings per share has been flat since 2013 and reflects foreign exchange pressures and higher costs to compete against rival consumer packaged goods companies. While the commodity and foreign exchange outlook for 2020 looks "less onerous," Tong said the company will likely continue seeing share losses in the key toothpaste business.

Price Action

Shares of Colgate-Palmolive traded around $68.18 at time of publication.

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