Bernstein: Colgate's Got A Target On Its Back For Activist Investors

A little over a year ago, Colgate-Palmolive Company CL confessed it was considering selling itself.

Nothing came of the remarks except the Street’s short-lived speculation of suitors, but one analyst suspects a near-term revival of talk around strategic alternatives.

The Rating

Bernstein analysts Ali Dibadj and Ian Gordon maintained a Market Perform rating with a $72 price target.

The Thesis

By Bernstein’s assessment, a number of circumstances around Colgate-Palmolive “could make the business ripe for an activist.”

From the start, individual units are seen to be attractive to potential buyers, with Home Care and Pet Food demonstrating room for improvement and Oral Care presenting white-space opportunity.

At the same time, the company could tighten efficiency by exploring a different tax structure comparable to those of peers.

Finally, intervention could help reverse recent stock underperformance driven by negative multiple re-ratings and one-, two- and five-year periods of weaker earnings growth.

“To be fair, management could have reacted faster to changes in the market place (e.g., local competitors, naturals innovation, investments behind e-commerce/digital), while struggling to work through a handful of one-timers, and suffering from poor investment decisions behind its brands — things we have certainly asked about,” Dibadj and Gordon wrote in a note.

They noted that activist involvement is possible, but not imminent.