Stifel upgrades Colgate-Palmolive, sees 14% upside driven by strong Hills pet food sales

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Colgate-Palmolive has more upside ahead than downside, according to Stifel. The investment bank upgraded the multinational household products maker to buy from hold in a Sunday earnings preview, although it trimmed its price target 5% to $81 from $85. Still, the new forecast implies roughly 14% upside from Friday’s $70.95 close. Colgate-Palmolive stock has slipped nearly 10% since the start of the year. Third quarter results are due on Oct. 27, with analysts polled by FactSet forecasting an adjusted 80 cents per share on $4.8 billion in revenue. CL YTD mountain Colgate-Palmolive stock. Analyst Mark Astrachan pinned much of the improved rating on Colgate’s Hills pet food division, together with weaker inflation and strong pricing power helping it expand gross margins in the third quarter, while also growing sales heading into next year. “Hill’s remains one of the best performing divisions,” Stifel said. “Pet nutrition (22% of sales in 2Q23) contributed 234bps, or ~29% to growth in 2Q23…Management remains optimistic on the long-term runway for growth due to the brand’s science-based market positioning and improving yet low brand awareness.” Meanwhile, less inflation “and ongoing benefits from pricing and productivity should contribute to greater sequential gross margin expansion in 3Q23, and to EBIT/EPS growth.” Stifel also expects year-over-year market share improvement in Colgate toothpaste, “which began in 1Q22 following years of share underperformance, to continue,” Astrachan said. While the analyst reduced earnings per share estimates from 2023 into 2024 due to “worsening FX rates,” he added that Colgate sells at “a discount to historic levels relative to peers.” Separately on Monday, Morgan Stanley reiterated an overweight recommendation on Colgate, echoing Stifel’s view that its stock is cheap relative to peers. Morgan Stanley’s price target is $89. — CNBC’s Michael Bloom contributed to this report.