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What the A+ Stock
Grades Reveal
Colgate-Palmolive Co. (CL) is a household and consumer products
company. The company operates in two product segments: oral, personal and
home Care; and pet nutrition. The oral, personal and home care segment is
managed geographically through five segments—North America, Latin America,
Europe, Asia Pacific and Africa/Eurasia—all of which sell primarily to a
variety of traditional and e-commerce retailers, wholesalers, distributors,
dentists and skin health professionals. Through Hill’s Pet Nutrition, the
company is also engaged in the pet nutrition market, selling products
principally through authorized pet supply retailers, veterinarians and
e-commerce retailers. It also sells some of its products
direct-to-consumer. It sells its toothpastes under brands such as Colgate,
Darlie, elmex, hello, meridol, Sorriso and Tom’s of Maine; its toothbrushes
under brands, such as Colgate, Darlie, elmex and meridol; and its
mouthwashes under brands, such as Colgate, elmex and meridol.
A higher-quality stock possesses traits
associated with upside potential and reduced downside risk. Backtesting of
the Quality Grade shows that stocks with higher grades, on average,
outperformed stocks with lower grades over the period from 1998 through
2019.
Colgate has a Quality Grade of A with a
score of 98. The A+ Quality Grade is the percentile rank of the average of
the percentile ranks of return on assets (ROA), return on invested capital
(ROIC), gross profit to assets, buyback yield, change in total liabilities
to assets, accruals to assets, Z double prime bankruptcy risk (Z) score and
F-Score. The F-Score is a number between zero and nine that assesses the
strength of a company’s financial position. It considers the profitability,
leverage, liquidity and operating efficiency of a company. The score is variable,
meaning it can consider all eight measures or, should any of the eight
measures not be valid, the valid remaining measures. To be assigned a
Quality Score, though, stocks must have a valid (non-null) measure and
corresponding ranking for at least four of the eight quality measures.
The company ranks strongly in terms of its
return on assets, F-Score and gross income to assets. Colgate has a return
on assets of 12.4%, an F-Score of 7 and a gross income to assets of 62.9%.
The sector median return on assets and F-Score are 1.8% and 4,
respectively. Colgate ranks above average for every quality metric except
change in total liabilities to assets.
Earnings estimate revisions offer an
indication of how analysts view the short-term prospects of a firm. For
example, Colgate has an Earnings Estimate Revisions Grade of D, which is
negative. The grade is based on the statistical significance of its latest
two quarterly earnings surprises and the percentage change in its consensus
estimate for the current fiscal year over the past month and past three
months.
Colgate reported an earnings surprise for
fourth-quarter 2022 of 0.8%, and in the prior quarter reported an earnings
surprise of 1.1%. Over the last month, the consensus earnings estimate for
the first quarter of 2023 has decreased from $0.745 to $0.713 per share due
to two upward and 11 downward revisions. Over the last three months, the
consensus earnings estimate for full-year 2023 has decreased 1.4% from
$3.166 to $3.122 per share due to five upward and 13 downward revisions.
The company has a Value Grade of F, based on
its Value Score of 17, which is considered ultra expensive. This is derived
from a high price-to-book-value (P/B) ratio of 97.92 and a
price-to-free-cash-flow (P/FCF) ratio of 89.9, which rank in the 99th and
89th percentiles, respectively. Colgate has a Growth Grade of A based on a
score of 89. The company has had strong sales increases over the last five
years.
Kimberly Clark Corp. (KMB) is engaged in the manufacturing and
marketing of a range of products made from natural or synthetic fibers
using technologies in fibers, nonwovens and absorbency. The company’s
segments include personal care, which offers solutions and products such as
disposable diapers, training and youth pants, swim pants, baby wipes,
feminine and incontinence care products and other related products sold
under the Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Sweety,
Kotex, U by Kotex, Intimus, Depend, Plenitud, Softex, Poise and other brand
names. The consumer tissue segment offers facial and bathroom tissue, paper
towels, napkins and related products sold under the Kleenex, Scott,
Cottonelle, Viva, Andrex, Scottex, Neve and other brand names. The K-C
Professional segment offers solutions and supporting products such as
wipers, tissue, towels, apparel, soaps and sanitizers. Its brands include
Kleenex, Scott, WypAll, Kimtech and KleenGuard.
The company has a Value Grade of D, based on
its Value Score of 22, which is considered to be expensive. Higher scores
indicate a more attractive stock for value investors and, thus, a better
grade.
Kimberly Clark’s Value Score ranking is
based on several traditional valuation metrics. The company has a rank of
22 for shareholder yield, 99 for the price-to-book ratio and 95 for the
price-to-free-cash-flow ratio (with the higher ranks being better for
value). The company has a shareholder yield of 3.4%, a price-to-book ratio
of 99.65 and a price-to-free-cash-flow ratio of 164.5. The company has a
price-to-sales ratio of 2.16, which translates to a rank of 52.
The Value Grade is based on the percentile
rank of the average of the percentile ranks of the valuation metrics
mentioned above, along with the ratio of enterprise value to earnings
before interest, taxes, depreciation and amortization (EBITDA),
price-to-sales (P/S) ratio and price-earnings (P/E) ratio. The rank is
scaled to assign higher scores to stocks with the most attractive
valuations and lower scores to stocks with the least attractive valuations.
Kimberly Clark has a Momentum Grade of C,
based on its Momentum Score of 50. This means that it is average in terms
of its weighted relative strength over the last four quarters. This score
is derived from an above-average relative price strength of –2.8% in the
most recent quarter, –0.3% in the second-most-recent quarter, –1.7% in the
third-most-recent quarter and 3.5% in the fourth-most-recent quarter. The
scores are 54, 48, 53 and 66 sequentially from the most recent quarter. The
weighted four-quarter relative price strength is –0.8%, which translates to
a score of 50. The weighted four-quarter relative strength rank is the
relative price change for each of the past four quarters, with the most
recent quarterly price change given a weight of 40% and each of the three
previous quarters given a weighting of 20%.
Kimberly Clark has a Quality Grade of A with
a score of 90. The company ranks strongly in terms of its return on assets,
F-Score and gross income to assets. Kimberly Clark has a return on assets
of 9.9%, an F-Score of 7 and a gross income to assets of 34.9%.
Procter & Gamble Co. (PG) is focused on providing branded
consumer packaged goods to consumers across the world. The company operates
through five segments: beauty; grooming; health care; fabric and home care;
and baby, feminine and family care. The company sells its products through
approximately 180 countries and territories primarily through mass
merchandisers, grocery stores, membership club stores, drug stores,
department stores, distributors, wholesalers, baby stores, specialty beauty
stores, e-commerce, high-frequency stores, pharmacies, electronics stores
and professional channels. It offers products under the brands Head &
Shoulders, Herbal Essences, Pantene, Rejoice, Olay, Old Spice, Safeguard,
Secret, SK-II, Braun, Gillette, Venus, Crest, Oral-B, Metamucil, Neurobion,
Pepto-Bismol, Vicks, Ariel, Downy, Gain, Tide, Cascade, Dawn, Fairy,
Febreze, Mr. Clean, Swiffer, Luvs, Pampers, Always, Always Discreet,
Tampax, Bounty, Charmin and Puffs.
Procter & Gamble has a Quality Grade of
A with a score of 97. The company ranks strongly in terms of its return on
assets, F-Score and buyback yield. Procter & Gamble has a return on
assets of 11.9%, an F-Score of 7 and a buyback yield of 2.0%.
Procter & Gamble has a Momentum Grade of
C, based on its Momentum Score of 45. This means that it is average in
terms of its weighted relative strength over the last four quarters. The
weighted four-quarter relative price strength is –1.7%.
Procter & Gamble reported a positive
0.1% earnings surprise for fourth-quarter 2022, and in the prior quarter
reported an earnings surprise of 1.8%. Over the last month, the consensus
earnings estimate for the first quarter of 2023 has decreased from $1.352
to $1.334 per share due to four upward and 13 downward revisions. Over the
last month, the consensus earnings estimate for full-year 2023 has
increased from $5.814 to $5.841 per share, based on 16 upward and two
downward revisions.
The company has a Value Grade of F, based on
its Value Score of 19. This is derived from a price-earnings ratio of 24.8
and a shareholder yield of 4.6%, which rank in the 67th and 17th
percentiles, respectively. Procter & Gamble has a Growth Grade of A
based on a score of 89. The company has had strong sales increases over the
last five years.
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