Colgate-Palmolive (CL)

Total return at 5 years: 3.9%/year = 1.3% appreciation + 2.6% dividend. The target price ($96) is ex-dividend; the $12 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($90) and the other below.

Today — expensive, no margin of safety: at $90 trades ~2.8% above its value discounted to today (~$88); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($96) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$56.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($90) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (2.2%/year) than we project (5.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$3.3 bn of owner earnings in year 5 (vs ~$3.8 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad neta normalizada (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Rolling grid: year 0 is the real TTM (revenue of US$21,046M as of Jun 30, 2026). Colgate-Palmolive is the global leader in oral care (~41.3% share in toothpaste, ~32.4% in manual toothbrushes) plus personal care, home care and Hill's Pet Nutrition, sold in more than 200 countries (two thirds of sales outside the United States, ~45% in emerging markets). It is valued on P/E over normalized attributable net income (~$2.90bn TTM): GAAP FY2025 was depressed by an after-tax impairment charge of $794M in the skin health business (mainly Filorga —brand $244M + customer relationships $93M + goodwill $582M, on lower category growth and weakness in China), a non-cash charge that normalized earnings exclude (the company itself reports non-GAAP earnings of $2,996M / $3.69 per share in FY2025). The NCI (~5.8% of consolidated earnings, ~$128M) is already excluded from the attributable figure. The start of the path (~+2.8%) is consistent with the recent trajectory (FY24 +3.3% · FY25 +1.4% organic with volume −0.4% · TTM ~+2.5%): a low-growth consumer staple where price (+2.1%) holds up while volume retreats and toothpaste share gave up 0.4 points; the normalized net margin (~14.0%) recovers modestly toward ~15.0% as input costs normalize (gross margin fell 420 basis points in 2025 on raw materials) and the productivity program (Strategic Growth and Productivity Program, $200-300M of charges through 2028) delivers savings. Exit multiple 20× = the middle of the consumer staples band [16,22]: it compresses from today's normalized multiple (§2), below the ceiling for the weaker growth (negative volume, retreating share, the skin business impairment), but above the floor for margin quality (gross ~60%) and the brand moat. reinvestsExcess: it returns most of its FCF (dividends $1.83bn + buybacks $1.23bn ≈ 80% of real FCF of $3.77bn over the twelve months to Mar 31, 2026) and the rest is redeployed into working capital, debt service and bolt-on acquisitions (Prime100) — cash stays roughly flat (~$1.3bn), it does not accumulate excess cash. A share path for net buybacks of ~1.2%/year (revealed: 815M → 805M diluted shares), disciplined by cash capacity (buyback dollars fell ~30% year over year in 2025). The dividend (a Dividend King, $2.12 current, raised to $0.53/quarter in June 2026) is the bulk of the return.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $96 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $90, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $96 in 5 years plus $12 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $88. Against the current market price ($90), the margin of safety is -2.8% (trades above the maximum → a premium is paid) and the total return at that price would be 3.9% annually.

• Multiple vs quality. Today's normalized P/E 25×, above the staples band despite weaker growth; the valuation uses 20×, in the middle of the band.
• Reverse DCF. The growth implied by today's price demands more than a low-growth consumer staple comfortably delivers — little room for an additional misstep.
• Margin of safety. The base-case expected total return is modest, resting mostly on the dividend; neither an obvious bargain nor obviously overvalued — a great company at a full price.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (99%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs the 10% bar. Return on capital is elevated (estimated ~30%, well above the 10% bar)—a brand business with light assets and high returns; the estimate derives from actual balance sheet assets and liabilities.
• Margin and stability. Gross margin ~60%, among the best of the staple consumer goods group; input costs subtracted 420 bps in 2025, but productivity initiatives and pricing already offset 88% of that hit in the same year (net decline of just 40 bps).
• Quality of cash. Real free cash flow reconciles consistently with normalized earnings — the GAAP decline is a non-cash charge (impairment), not a deterioration in cash generation.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of a consumer staple is volume × price. At Colgate, organic growth (+1.4% in 2025) came almost entirely from price (+2.1%), with volume declining (−0.4%) — defensive pricing against input costs, not pure pricing power. The segment breakdown shows unbalanced growth: emerging markets (Africa/Eurasia, Latin America) hold up while North America and Asia Pacific decline. Hill's is the best-mix franchise (higher growth and margin expansion).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Organic growth (+1.4%) is the clean measure (excludes FX and acquisitions); the reported figure is affected by the currency effect of high-inflation markets.
• Growth engine. Almost entirely price, with consolidated volume declining — there is no organic volume engine today except in some emerging markets and Hill's.
• Deceleration and cycle. The growth path stabilizes near category growth for a consumer staple (~+2.8%); this is not an acceleration business.

• Relevant in 10 years (recurrence). Recurring, low-unit-value oral and personal care consumption; the category persists, but brand loyalty competes with private label.
• Pricing power. The +2.1% price increase offset input costs in 2025, but generated −0.4% volume — a sign of elasticity, not pure pricing power.
• Moat and its direction. Wide and stable on brand and global scale; toothpaste share gave up 0.4 points and the skin care business was impaired, but the core moat remains intact.
• Capital cycle. Input costs (raw materials, not the company's own capital) are the driver of the current cycle; the Filorga misstep shows that capital allocation in acquisitions doesn't always get it right.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)16.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 99% of ROIC
• ✓Value creation (ROIC − 10% bar)+31pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.9x — no over-investment
• !Float / working capitalConsumes cash $0.1 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt ~$6.6bn, coverage ample from strong cash flow; book equity is anemic (~$145M) from accumulated treasury, not a solvency signal.
• Coverage and cash. Operating free cash flow (GAAP) less capex yields ~$3.63bn free cash; dividend (~$1.82bn) plus buyback (net of option exercises ~$1.11bn, ~$1.21bn on a gross basis) absorb between 81% and 84% of that free flow—the margin of slack is smaller than in the past from margin compression.
• Interest coverage. Normalized operating profit / interest ~16× — ample.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Insiders ~0.43%, low; no founder/family control; Chairman and CEO in the same person (Wallace), no separate independent chairman.
• Capital allocation. Dividend King with active buybacks; buybacks were cut ~30% in 2025 to protect the dividend, and the Filorga impairment exposed a failed acquisition.
• Integrity / normalization. The company breaks down in detail the charges that distort GAAP (impairment, ERISA litigation, restructuring) and reports a reconciled non-GAAP earnings figure.

• FY2025 GAAP collapsed on a $794M non-cash after-tax impairment charge in the skin care business (Filorga) — whoever looks at the P/E on GAAP earnings sees it as artificially expensive, and whoever normalizes it finds it still trades at 25×.
• The consumer staples sector is out of favor (fears over weight-loss drugs' effect on consumption, the rate environment), and the stock is beaten down — which gives the appearance of an opportunity.
• Growth stalled (organic +1.4%, negative volume, toothpaste share retreating), which the market punishes in a business expected to deliver steady growth.

The appearance of cheapness (a beaten-down stock, GAAP depressed by the impairment) does not hold on normalized income: at 25× it still trades above the staple band. The quality is real, but there is no clear gap between perception and reality that makes it a bargain—it only appears cheap. An 8-K of results after fiscal year-end (May 1st, 2026, first quarter) maintained FY2026 net sales guidance (+2% to +6%) and EPS non-GAAP guidance, and only revised down the gross margin outlook due to announced tariffs and finalized ones by late April 2026; the path in this valuation (revenue +2.8%, income +4.3%) falls within both guided ranges, so the reading above does not change.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -3%/year (-13% total): the margin of safety protects the downside. The bull (+8%/year, +49% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Volume and private label. The central disconfirmer: growth rests on price while volume falls and toothpaste share cedes ground — if elasticity intensifies, the base case gets revised.
• Currency exposure. Two-thirds of sales outside the United States, with acute volatility in hyperinflationary economies (Argentina, Nigeria, Türkiye).
• Tariffs and input costs. Tariffs from the United States/China and USMCA renegotiation on raw material and packaging, already a margin drag in 2025 and the reason FY2026 guidance was revised down on gross margin.
• Talc litigation. 454 pending cases at the end of 2025 (+47% year-over-year, from 308 in 2024), with outcomes ranging from dismissals to verdicts of large magnitude per the filing itself—a tail of risk hard to quantify.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 42% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 5% at a PEG of 4.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 6% (EBIT/EV) + ROIC 42% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 2% vs our 5%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -6%/yr, bull-scenario ceiling +6%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, switching costs, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 2%, within what we project (5%) — the story squares with the numbers.