Colgate Constrained by Costs
Colgate-Palmolive Company (CL) has had a stellar long-term growth record. The company's tight financial controls and history of new product innovations coupled with efforts to enhance shareholder value through share repurchases and dividend increases support a positive long-term view on the stock. However, rising raw material/fuel costs and the costs related to the implementation of the restructuring plan remain concerns.
The stock has traded in a P/E multiple range of 18 to 27 over the last four years. However, during the last time of earnings de-acceleration and a corporate restructuring in the mid-1990s, Colgate's stock traded at a P/E in the low 20s. The stock is currently trading at a P/E multiple of 22.2, which is in the middle of the historical range.
Positive earning surprises, along with savings from the company's restructuring and business-building plan, should support future growth. In addition, the company remains the clear market leader in the oral care segment. With an array of new products scheduled to be launched in 2008, the company should deliver positive results.
However, aggressive advertising expenditures and higher input costs should continue to constrain near-term growth. Therefore, the stock is rated a Hold. The target price of $81 is based on a 24 P/E on 12-month trailing earnings.
Cutting Costs at Stoneridge
Stoneridge, Inc. (SRI) is aggressively cutting costs and benefiting from the growth of the commercial vehicle market. Increased use of electronics in vehicles is also benefiting the company. However, a squeeze between raw materials and prices, along with weak vehicle demand, force us to remain on the sidelines and rate the shares a Hold.
In the fourth quarter, earnings of the company were $0.28 per share, compared to $0.06 per share in the same period last year. Net sales were $186 million, up from $171 million in the year-ago period. The improvement in fourth-quarter results was primarily attributable to new program sales of electronics in Europe and North America and a more favorable sales mix in the company's North American electronics business.
Currently, shares of Stoneridge are trading at 16.1x our 2008 EPS estimate of $0.72. We rate the shares a Hold with a target of $12, which is 16.8x our 2008 estimate.
Expensive U.S. Auto Parts
U.S. Auto Parts Network (PRTS) reported disappointing fourth quarter results, missing on the top- and bottom-lines. Its outlook for 2008 was equally disappointing. Given the weak fourth quarter results and disappointing outlook, we are lowering our estimates.
Even so, we continue to believe there is significant growth potential for PRTS. The aftermarket auto parts industry is a $90-billion business, but online sales account for just 2% of sales.
The company updated its preliminary guidance for full-year 2008.
