Can Colgate-Palmolive (CL) Keep Investors Smiling? - TheStreet

Year to date, shares of Colgate-Palmolive (CL) - Get Report are up 10.4%. Of the 23 analysts who follow the stock, 83% rate it a hold. Is now the time to get in before a flood of upgrades takes the stock well over $75?

Colgate-Palmolive is the undisputed worldwide market-share leader in oral care. The company dominates the market in over 200 countries, so when the U.S. dollar strengthened in the summer of 2014, Colgate's foreign currency nightmare began.

Between 2013 and 2015, Colgate reduced expenses and saved 220 basis points a year, but the savings were overshadowed by exchange rates. Despite the cost-cutting, gross margins were unchanged.

Exchange rates have stabilized and gross margin has begun to lift. In the second quarter of fiscal 2016, the company reported a 60.2% gross margin. Management has maintained it can get to a 65% gross margin over the long term.

Two weeks ago, management gave a presentation to investors at the Barclays Global Consumer Staples Conference and laid out a solid growth plan. First, Colgate has grown its top line in the low single digits for 15 years straight. And for the first half of fiscal 2016, the company has continued that trend. Revenue is up 2.5%. Likewise, organic sales have grown by mid-single digits. And even more impressively, gross margin has gone from 47% to 60.2% in those 15 years. Colgate has even managed to grow dividends for 54 consecutive years.

Worldwide, Colgate has a 43.9% market share of the toothpaste business. Oral care is 47% of revenue.

In the U.S., Colgate has edged out the competition by 60 basis points, as Procter & Gamble (PG) - Get Report (Crest & Oral B) is busy with restructuring and has lost focus on the oral care business. Colgate now holds 35.9% of the U.S. toothpaste market.

Emerging markets are very important to Colgate. Business in countries like Brazil and Russia has picked up. Colgate has a 73.3% share of the Brazilian market and 35.1% of the Russia market. In addition, it holds a commanding lead in China (32.8%) and India (53.4%). The share results are very similar for toothbrushes and mouthwash. Emerging markets are 51% of revenue.

In the first half of fiscal 2016, sales were down 7.6% and 5.4%. But the currency headwinds seem to be easing and emerging markets are bouncing back, so the second half of 2016 should be much better. In fact, analysts think third-quarter sales will be down 0.4% and fourth-quarter sales might grow between 2% and 2.5%. That means Colgate will probably have revenue of $15.6 billion and earnings of at least $2.82 per share, up 0.5%.

Next year promises to be better. Colgate could grow revenue between 5% and 6% to $16.4 billion to $16.5 billion, and earn at least $3.09 per share, up 9.5%.

I think the stock is being held back because investors do not have enough confidence in the fiscal 2017 analyst estimates. Colgate is scheduled to report third-quarter results on Oct. 27. If management can give investors and analysts confidence in management's forward guidance, I think some of those analysts' hold ratings will be upgraded. The third-quarter report could very well be the catalyst that will keep investors smiling.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.