Colgate-Palmolive: A Value Investor's Look at the 2026 Re-Rating Opportunity

The market has been unkind to Colgate-Palmolive in recent months. The stock has fallen 4% over the last 120 days and trades roughly 15% below its 52-week high. This decline comes despite the company operating a business of undeniable quality. For the full year 2025, the operational picture was one of stagnation, with organic sales growing only 0.4%. Compounding the pressure, the company's gross profit margin decreased 170 basis points to 59.4%, a clear sign that cost headwinds are squeezing the bottom line.

Analysts see this year as the trough. Morgan Stanley, which has named Colgate its top pick for the year, frames 2025 as a "below-plan" year and expects the company's sales growth to recover in 2026. Their thesis hinges on a combination of easier comparisons and the rollout of a new strategic plan, which they believe will reaccelerate growth above peers. The setup, therefore, is classic value investing material: a durable franchise with a wide moat in essential categories like oral care-where it holds a 41.2% global market share in toothpaste-is being sold at a discount because of a temporary operational slump.

The key for an investor is to assess whether this discount offers a sufficient margin of safety. The company's 2026 outlook, as seen by Morgan Stanley, calls for a return to growth, with projections of 3% organic sales growth and 6% earnings per share growth. If executed, this recovery could justify the current price. The challenge is to separate the cyclical doldrum from the company's long-term intrinsic value. For now, the depressed stock price suggests the market is pricing in a prolonged struggle, not the eventual re-acceleration that analysts anticipate.

The Moat and the Margin of Safety

For a value investor, the core question is whether a business's durable advantages are priced in. Colgate-Palmolive offers a classic case of a wide moat being sold at a discount. The company's dominance in essential categories is a tangible indicator of pricing power and brand strength. It holds a 41.2% global market share in toothpaste and a 32.4% share in manual toothbrushes. These positions are not fleeting; they are built on decades of consumer trust and are difficult for competitors to erode. This moat provides a foundation for compounding, even in a challenging year.

Financial discipline is another hallmark of a quality business. Colgate's commitment to shareholders is evident in its dividend policy. The company has paid uninterrupted dividends since 1895 and has increased payments for 63 consecutive years. This track record, combined with a payout ratio of 57% of earnings, signals a sustainable distribution that management is willing to protect. It's a vote of confidence in the business's long-term cash-generating ability.

The current price offers a quantitative margin of safety. With the stock trading at roughly 23 times trailing earnings, it is not a bargain by any stretch. Yet, the yield provides a tangible return while waiting for the business to re-rate. The dividend yield of approximately 2.46% is a steady income stream that can cushion the portfolio during periods of stock price stagnation. More importantly, the yield is supported by a business that, despite its recent operational struggles, still generates substantial cash flow. The market is pricing in a prolonged period of low growth and margin pressure. The margin of safety lies in the gap between that pessimistic view and the company's proven ability to defend its market positions and deliver consistent earnings over the long cycle.

The setup is one of patience. The wide moat and disciplined capital allocation are intact. The current price, while not deeply discounted, offers a yield that rewards holding through the trough. For an investor, the risk is not in the business model, but in the timeline for the re-rating. The dividend provides a reason to stay invested while the company executes its new strategy.

The 2026 Catalyst and Wall Street's View

Wall Street's view on Colgate is one of cautious optimism, with a clear consensus that the worst of the operational slump may already be priced in. The average analyst price target sits at $87, which implies a roughly 13% premium to recent trading levels. This gap between the current price and the average target is the market's first signal that a re-rating is possible. It suggests a broad belief that the company's 2025 struggles-driven by difficult comparisons and category weakness-are a temporary overhang, not a permanent impairment of its value.

This consensus is supported by specific analyst actions. TD Cowen recently adjusted its stance, reducing its price target from $90 to $86 while maintaining a Buy rating. The firm's projection for 2026 is notably bearish on the sector, anticipating a difficult year for large-cap consumer staples with pricing projected to stay restrained and volume growth unlikely to improve from the negative 0.9% seen in 2025. Yet, even within this gloomy sector outlook, TD Cowen sees Colgate as a relative standout, maintaining its Buy rating. This is a key point: the downgrade is not a loss of faith in the company, but a recognition of a tough macro environment that may limit its own growth this year.

The primary catalyst for a re-rating, as articulated by Morgan Stanley, is a sustained acceleration in organic sales growth in 2026. The firm's top-pick thesis hinges on this recovery, which they believe is possible because the company's growth may outpace peers. They point to a combination of easier 2025 comparisons, early signs of strength in emerging markets, and a potential recovery in market share in oral care as the drivers. The company's lower dependency on the U.S. market, a point highlighted by Piper Sandler, provides a buffer and a source of growth that many of its larger rivals lack.

The bottom line is that the re-rating thesis is not a single event but a process. It is supported by a Wall Street consensus that sees value in the current price, even as individual targets are trimmed to reflect a challenging year. The path forward depends entirely on operational execution. If Colgate can deliver on the promise of accelerating growth in 2026, as analysts anticipate, the stock's multiple could expand from its current depressed level. The dividend yield provides a floor of income while waiting for that catalyst to play out. For a value investor, the setup is one of patience: the margin of safety is in the business's durable moat and disciplined capital allocation, while the re-rating is the reward for waiting for the operational recovery to materialize.

Risks and What to Watch

The investment thesis for Colgate-Palmolive is not without guardrails. The path to a re-rating is contingent on the company navigating a challenging macro environment and executing its recovery plan. For a value investor, the key is to identify the forward signals that will confirm or contradict the anticipated turnaround.

The primary risks are structural and operational. First, prolonged pricing pressure in the consumer staples sector is a real threat. As TD Cowen notes, the firm anticipates a difficult year for large-cap consumer staples, with pricing projected to stay restrained. If this pressure persists, it could prevent Colgate from regaining the gross margin it lost in 2025. The company's gross profit margin decreased 170 basis points to 59.4% last year-a clear warning that cost inflation is being absorbed by the business, not passed to consumers. This margin compression is the direct enemy of intrinsic value.

Second, the success of the 2026 recovery hinges on emerging markets. Analysts see early signs of growth there as a key driver, but a failure to achieve the expected pickup would undermine the entire re-acceleration thesis. The company's lower dependency on the U.S. market is a strength, but it also means its growth story is now more reliant on these volatile regions. Any geopolitical or economic instability in those markets could derail the projected sales acceleration.

Therefore, the operational metrics to monitor are clear. Investors must watch quarterly gross margin trends as the most direct indicator of pricing power and cost control. A stabilization or improvement here would signal the company is regaining its pricing edge. Equally important is the trajectory of organic sales growth. The company's last quarterly results showed organic sales growth at 0.4% for the full year, which Morgan Stanley views as the low point. Signs of a sustained climb above that level, particularly in the first half of 2026, would validate the recovery narrative.

Finally, the sustainability of the dividend remains a critical metric. A payout ratio of 57% of earnings is conservative and provides a cushion. However, if earnings remain pressured by the same headwinds that squeezed margins, that ratio could compress. The company has a 63-year history of increasing dividends, but a payout ratio that rises toward 70% or higher would be a red flag for the dividend's safety and could dampen investor sentiment.

The bottom line is that the current price offers a margin of safety anchored in a wide moat, but the re-rating is a forward bet. The risks are not hypothetical; they are the very pressures that caused the stock's recent decline. For the thesis to hold, Colgate must demonstrate it can navigate the sector's pricing constraints and leverage its emerging market exposure to drive growth. The dividend provides a floor, but the path to a higher multiple runs through quarterly operational execution.