Why Did Credit Suisse Upgrade Colgate-Palmolive After Stock Underperformance?

Colgate-Palmolive Company’s CL shares have significantly underperformed the S&P 500 over the past year, with tough comps and rising inflation overshadowing a “fundamentally better business,” according to Credit Suisse.

The Colgate-Palmolive Analyst: Kaumil Gajrawala upgraded the rating for Colgate-Palmolive to Outperform, while raising the price target from $80 to $95.

The Colgate-Palmolive Thesis: Although the company’s U.S. retail sales have declined by 15% year to date, its category growth is tracking at a rate that is twice that in the year before the pandemic, Gajrawala said in the upgrade note.

Referring to mega-cap turnarounds, the analyst noted, “In almost every instance, turnarounds were fueled by brand investment. Advertising is approaching $2bn annually, the highest level in at least 20 years.”

“As such, Colgate’s sales were accelerating prior to the pandemic and the company is gaining share in more category-country combinations since 2015,” he added.

“We think Colgate can deliver gross margin expansion in ’21 and beyond based on its ability to take pricing and drive incremental productivity savings,” Gajrawala further wrote.

CL Price Action: Shares of Colgate-Palmolive are down 0.060% $82.88 at the time of publication Wednesday.

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