We think that Colgate-Palmolive stock (NYSE: CL) is currently a better pick over its industry peer – Kimberly-Clark stock (NYSE: KMB). CL stock trades at 3.5x trailing revenues, versus 2.1x for KMB. We think this gap in valuation will remain in favor of CL in the coming years, given its superior revenue growth and profitability. There is more to the comparison, and in the sections below, we discuss why we think CL will outperform KMB in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation – in an interactive dashboard analysis – Colgate-Palmolive vs. Kimberly-Clark.
Both CL & KMB Have Underperformed The Broader Markets
CL stock has seen little change, moving slightly from levels of $80 in early January 2021 to around $85 now. Similarly, KMB stock has also seen little change, from levels of $115 to around $125 over the same period. This compares with an increase of about 55% for the S&P 500 over this roughly four-year period.
Overall, the performance of CL and KMB stocks with respect to the index has been lackluster. Returns for CL stock were 2% in 2021, -5% in 2022, 4% in 2023, and 17% in 2024, while that for KMB stock were 10%, -2%, -7%, and 12%, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, 24% in 2023, and 23% in 2024 — indicating that CL as well as KMB underperformed the S&P in 2021, 2023 and 2024.
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Colgate-Palmolive Has Seen Better Revenue Growth
Colgate-Palmolive has seen its revenue rise at an average annual rate of 5.7% from $16.5 billion in 2020 to $19.5 billion in 2023. On the other hand, Kimberly-Clark average revenue growth rate of 2.2% from $19.1 billion to $20.4 billion over this period has been comparatively slower.
Colgate-Palmolive Revenue is reported under two segments – Oral, Personal, & Home Care, and Hill’s Pet Nutrition. These segments accounted for 78% and 22% of the total sales in 2023, respectively. Pet Nutrition has been the key growth driver for the company in the recent past. Also, better price realization has bolstered the revenue growth in recent years.
Kimberly-Clark’s Revenue growth has lately been driven by better price realization. The company produces primarily paper-based consumer products, manufacturing sanitary paper products and surgical & medical instruments. The Personal Care segment made up around 52% of the company’s sales in 2023, contributing $10.7 billion to total revenue. Although the company is benefiting from pricing gains for its products, the volume growth has been tepid lately.
Colgate-Palmolive Is Also More Profitable
Colgate-Palmolive’s operating margin fell from 23.5% in 2020 to 21% in 2023, while Kimberly-Clark’s operating margin contracted from 16.9% to 14.7% over this period. If we look at the last twelve-month period, CL’s operating margin of 21.8% fares better than 17.1% for KMB.
CL Has A Better Financial Position
Looking at financial risk, CL fares better. Its 12% debt as a percentage of equity is lower than 18% for KMB. Furthermore, its 7% cash as a percentage of assets is slightly higher than 6% for the latter, implying that CL has a better debt position and more cash cushion.
The Verdict
We see that CL has seen better revenue growth, is more profitable, and offers lower financial risk than KMB. Now, looking at prospects, we believe CL is the better choice of the two. It should continue to benefit from pricing and volume gains in the coming years. However, a strengthening dollar remains a risk factor. For the first nine months of 2024, the company saw a 4.5% sales growth, driven by a 5.2% rise in pricing and 3.3% volume growth, partly offset by a 4% forex headwind.
Looking at valuation, at its current levels of $87, CL stock is trading at 3.7x trailing revenues, aligning with the stock’s average P/S ratio over the last five years. Similarly, at its current levels of around $125, KMB stock trades at close to 2.1 trailing revenues, aligning with the stock’s average P/S ratio over the last five years. However, we forecast Colgate-Palmolive’s sales to trend higher, growing at a low single-digit average annual rate over the next three years. In contrast, we expect Kimberly-Clark to remain flat over the next three years, considering a mid-single-digit decline in 2024 sales, followed by a slight recovery over the next two years. This can be attributed to only a slight growth in volume and pricing, while forex headwinds have weighed on the top-line in 2024. Overall, we think CL is a better pick over KMB for the next three years.
While CL stock looks like a better pick over KMB, it is helpful to see how Colgate-Palmolive’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
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