Morgan Stanley upgrades Colgate-Palmolive, calls sell-off a good entry point to buy its top pick

Colgate-Palmolive is a top stock compared with peers and it’s cheap to buy right now, Morgan Stanley said. Analyst Dara Mohsenian upgraded the stock to overweight from equal weight and named it her top pick in the household and personal care industry. Her price target of $82 implies 14.5% upside from Friday’s close. The stock advanced 1.4% in Monday premarket trading following the call. Mohsenian said it’s attractive because of the recent 10% drop — a chunk of which came from a sell-off on Friday — that’s created “a buying opportunity into a structurally attractive name” that should beat expectations going forward despite a less-than-ideal fourth quarter. “Robust LT organic sales growth [is] not fully reflected in discounted valuation vs peers, and clearly conservative CY23 EPS guidance, that should enable CL to beat lowered forward consensus forecasts,” Mohsenian said in a note to clients Monday. The note was titled, “Stock Pullback Offers a Good Entry Point into a Solid Long-Term Story.” CL YTD mountain Colgate shares this year Colgate-Palmolive is down 9.1% this year despite the broader market’s rebound as investors shun defensive stocks. It was able to avoid some of 2022’s selloff, finishing the down 7.7% compared with the S & P 500 ‘s 19% fall. Mohsenian pointed to the company’s larger-than-expected fourth quarter gross margin miss and weaker-than-anticipated 2023 earnings guidance reported Friday as drivers of the most recent sell-off. But she said that fourth-quarter miss was more due to “transitory factors.” Overall, she said the company has strong top-line growth potential coming out of the pandemic. And she said expectations from the company for 2023 are “overly conservative.” She also noted that Colgate-Palmolive typically outperforms its expectations for earnings as evidence the company is setting its expectations for the year ahead too low. The stock has been somewhat supported as of late by speculation the company could get pressure from shareholders to separate its pet business, Mohsenian said. The analyst sees this as unlikely, but said the recent success of the business unit can provide a cushion in a downside scenario and increase pressure on management to improve shareholder value.. And Mohsenian said the stock has an attractive valuation, trading at a lower price-to-earnings ratio when looking ahead to 2024 compared with peers. — CNBC’s Michael Bloom contributed to this report.

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