Colgate-Palmolive Company

CL Details

Colgate-Palmolive Company (NYSE: CL) is a manufacturer of household and consumer goods. Oral, Personal and Home Care, and Pet Nutrition are the company's operating segments. According to market share data, CL is the leader in Oral Care, with global supremacy in the toothpaste and manual toothbrush categories. Colgate, Darlie, Elmex, Hello, Meridol, Sorriso, and Tom's of Maine are some brands it sells.

Latest News:

• Declaration of Dividends: CL announced a quarterly common stock cash dividend of USD 0.47 per share on March 10, 2022, increasing USD 0.02. The dividend will be paid on May 13, 2022, to shareholders of record on April 21, 2022. Since 1895, the company has paid dividends on its ordinary stock. CL has authorized the buyback of up to USD 5 billion in shares of its common stock under a new share repurchase program, which replaces its previous USD 5 billion share repurchase program authorized in 2018. After March 10, 2022, it has begun repurchasing shares of its common stock under the new program. It had approximately 840 million shares of common stock outstanding as of January 31, 2022.

FY21 Results:

• Growth in Topline: Due to volume growth of 1.0%, net selling price increases of 3.5%, and favorable foreign exchange of 1.5%, the company recorded a 5.77% gain in net sales to USD 17.42 billion in FY21 (ended December 31, 2021) compared to USD 16.47 billion in FY20.
• Improvement in Cash Cycle: The company reported an improvement in Cash Conversion Cycle to 39.7 days at the end of December 31, 2021, from 42.6 days at the end of December 31, 2020.
• Cash and Debt Position: As of December 31, 2021, the company had cash & cash equivalents of USD 866 million and total debt (including notes payables) of USD 7.25 billion.

Key Risks:

• Exchange Rate Risk: Since CL sells its products in over 200 countries and territories, the company is subject to currency changes due to manufacturing and selling in currencies other than the US dollar.
• Commodity Price Risk: Price fluctuation of raw commodities utilized in production, such as essential oils, resins, tropical oils, pulp, tallow, corn, chicken, and soybeans, exposes the company to commodity price risk.

Outlook:

• FY22 Estimates: CL expects its FY22 net sales growth to be around 1 to 4% as of January 28, 2022, including a low-single-digit negative impact from foreign exchange. The consumer products producer anticipates more significant advertising investment and double-digit earnings-per-share growth on a GAAP basis. On a non-GAAP (Base Business) basis, it expects gross profit margin expansion, higher advertising investment, and earnings-per-share growth in the low to mid-single digits.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

CL's share price has been relatively stable throughout the year, declined only 0.88% in the past twelve months and is currently trading towards the lower-band of the 52-week range of USD 73.34 to USD 85.61. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 85.35.

Considering the relative stability of the stock price, strong profitability margins, current valuation, and associated risks, we recommend a "Hold" rating on the stock at the closing price of USD 75.13, down 0.03% as of March 17, 2022.

Three-Year Technical Price Chart (as of March 17, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

Royalty Pharma PLC

RPRX Details

Royalty Pharma PLC (NASDAQ: RPRX) is the largest buyer of biopharmaceutical royalties and a significant financier of biopharmaceutical innovation. The company amasses a portfolio of royalties that entitles it to revenues based directly on the top-line sales of many of the industry's medicines, including royalties on over 35 commercial drugs.

FY21 Results:

• Growth in Topline: Total revenues climbed by 7.87% in FY21 (ended December 31, 2021) to USD 2.29 billion from USD 2.12 billion in FY20, driven by the growth across all segments.
• Cash and Debt Position: As of December 31, 2021, the company had cash and cash equivalents (including marketable securities and financial royalty assets) of USD 2.80 billion with a total debt of USD 7.10 billion.
• Decline of Bottom-line: RPRX reported a fall in consolidated net income to USD 1.24 billion in FY21 vs. USD 1.70 billion in FY20.
• Flat Cash Flow from Operations: The company reported a balanced cash flow from operations to USD 2.02 billion in FY21 from USD 2.03 billion in FY20.

Key Risks:

• Customer Concentration Risk: Vertex, as the marketer and payor of the company's royalties on the cystic fibrosis franchise, accounted for 32% and 27% of its current portion of Financial royalty assets, net, respectively, for the fiscal years ended December 31, 2021, and 2020, representing the most significant individual receivable balance in both years. As a result, a company's long-term financial health may suffer if it relies too heavily on a few clients.

Outlook:

• FY22 Estimates: As of February 15, 2022, RPRX forecasts that payments for operational and professional expenditures will be about 9% of Adjusted Cash Receipts in 2022. According to the semi-annual interest payment schedule of RPRX's existing bonds, interest paid in the first quarter of the fiscal year 2022 is expected to be USD 86 million, USD 83 million in the third quarter of the fiscal year 2022, and a de minimis amount paid in the second and fourth quarters of the fiscal year 2022.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

RPRX's share price has risen only 3.65% in the past six months. It is currently leaning towards the mid-band of its 52-week range of USD 34.86 to USD 48.75. We have valued the stock using the Price/Earnings multiple-based relative valuation methodology and arrived at a target price of USD 45.00.

Considering the company's proven track record, market dominance in the biopharmaceutical royalty industry, current valuation, leveraged balance sheet, and bottomline stress, we recommend a "Hold" rating on the stock at the closing price of USD 39.78, up 2.00%, as of March 17, 2022.

Three-Year Technical Price Chart (as of March 17, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.