Colgate-Palmolive (NYSE: CL) shares were corrected in January and hit new lows in the wake of the Q4 earnings report but this looks like a buyable bottom. An analyst is not only calling the bottom but the market is responding in kind. Analyst Dara Mohsenian of Morgan Stanley upped the stock to Overweight from Equal Weight calling it a Top Pick while citing the pullback as an opportunity in this well-positioned stock.

In his view, Colgate-Palmolive is showing pricing power due to the 17% premium it offers to consumers relative to other brands. This should help drive business as consumers trade down to less expensive products and has it set up to easily beat the F23 guidance. 

The guidance calls for growth as it is but only in line with the expectations. If the analyst community begins to think their estimates are too low, they could begin to raise their targets as well and help drive higher share prices.

As it is, the analysts have the stock pegged at a Hold verging on Buy, which has been steady for the last year and the price target is offering some upside. Morgan Stanley’s $82 target is in-line with the Marketbeat.com consensus which suggests at least 12% of upside is remaining and that is on top of the dividend. 

Colgate-Palmolive Has Mixed Quarter, Dividend Safe 

Colgate-Palmolive had a mixed quarter in regard to analyst expectations, but the results reveal solid business, stable revenue and the cash flow to continue improving operations and shareholder value. The company reported $4.63 billion in net revenue for a gain of 5.2% over the last year.

This was driven by pricing increases that left revenue $0.050 billion or 100 bps above the Marketbeat.com consensus with leadership in toothpaste and toothbrushes maintained. On an organic basis, not including divestiture and acquisition of a private-label operation, sales are up 8.5%. 

The bad news is that the gross margin contracted by 250 basis points which are slightly above the consensus and just enough to offset the top-line strength. The adjusted $0.77 in EPS is down 3.0% and as-expected, which helped to drive the share price implosion in the wake of the report.

The guidance is equally tepid, with revenue and earnings growth expected to be in the low to mid-single digits but the risk appears to be to the upside. 

Colgate-Palmolive Returns Capital To Shareholders 

Colgate-Palmolive returns capital to shareholders in the form of dividends and share repurchases. The company is paying about 2.6% with shares trading near $74, and there is a robust outlook for dividend increases. The company should not be expected to make large annual increases.

Still, the 59-year history of consecutive annual increases and 62% payout ratio suggest the 3% CAGR can be maintained indefinitely in the presence of the forecasted revenue and earnings growth. As for repurchases, the company announced a new $5 billion share repurchase program in mid-2022 and still has the lion’s share of that money left to spend. That’s worth about 6% of the market cap. 

The Technical Outlook: Colgate-Palmolive Hits Bottom 

Shares of Colgate-Palmolive hit bottom at a key support target after the Q4 results, and the rebound is now on. The upgrade has the stock up more than 2.5% and shows clear signs of support. Assuming the market follows through on this move, the stock should begin to move sideways while it reestablishes a base. Once done, upward price movement could resume, and the analysts could be the ones to get that movement started.