Colgate-Palmolive shares gain as Morgan Stanley says the recent pullback offers a good entry point

© Reuters.

By Sam Boughedda

Morgan Stanley analysts upgraded Colgate-Palmolive (NYSE:CL) to Overweight from Equal-Weight with a price target of $82 per share on Monday.

The analysts also labeled the stock as the firm's top Household Products pick, stating that the recent pullback in CL's share price offers a good entry point into a "solid long-term story."

"We are upgrading CL to OW, believing that a sharp recent stock pullback of nearly 10% in the last month (including -5.2% on Friday with Q4 EPS), during which CL underperformed the S&P 500 by nearly 1,800 bps, is offering a buying opportunity into a structurally attractive name," the analysts state.

"CL has robust pricing power (+12.5% YoY at CL in Q4, above PG and KMB at 10%), sustainably strong pet trends (13% H2 two-yr avg Pet organic sales even with capacity constraints), positive corporate strategy changes underway that are driving improved results, and attractive growth opportunity in emerging markets (half of sales mix), which makes it a solid LT story with MSD (5-6%) LT topline growth," they added.

The analysts also believe CL's 2023 results will come in above consensus expectations, which they believe are likely to be depressed by overly conservative CL guidance.

Furthermore, they argue that concerns driving the stock's pullback "were clearly exacerbated post-Q4 EPS on Friday, which included a large Q4 GM miss, as well as weaker than expected FY23 EPS guidance." As a result, the analysts believe it creates an opportunity.

CL shares are up around 1% premarket following the upgrade.