Morningstar

Colgate's Competitive Edge Will Endure

Colgate's Competitive Edge Will Endure
Securities In This Article
Colgate-Palmolive Co
(CL)

Erin Lash: Similar to others in the consumer products space, wide-moat Colgate's sales have succumbed to unfavorable foreign exchange and slowing category growth. However, we don't believe that this indicates an erosion in the firm's competitive edge but rather believe the firm's leading brand mix, entrenched relationships with retailers, and cost advantages should ensure it weathers these headwinds.

Our thinking regarding the sustainability of the firm's competitive positioning stems from its bent toward driving profitable top-line growth longer term. Over the last eight years sales have averaged around 5% annually, and that's been driven by a balanced mix of price and volume growth. Beyond this, Colgate is working to extract excess costs from its already lean operations, both with by driving efficiencies within its supply chain as well as manufacturing and marketing. However, we don't anticipate that Colgate will allow the entirety of these savings to fall to the bottom line but rather suspect that the firm will continue to invest to support the intangible asset source of its wide moat.

In line with our thinking, management continues to stress the importance of bringing locally relevant product innovation to market even at premium prices and to market these new products in front of consumers. We suspect that these efforts will ensure that Colgate maintains its leading 45% share of the global toothpaste category which is more than three times greater than its next closest competitor.

While the stock currently trades in line with our valuation, if the share price retreats we'd suggest investors stock up on this wide-moat name.

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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