Colgate-Palmolive Co. (NYSE: CL – $73.99), as part of its strategy to focus on its higher-margin businesses, announced it has agreed to purchase PCA Skin and EltaMD, two of the fastest-growing brands in professional skin care, in two separate transactions. These acquisitions will enable Colgate to enter the highly attractive professional skin care category while complementing its existing global oral and personal care businesses.
PCA Skin is a leader in medical-grade in-office and take-home skin care products, and has strong support from dermatologists, plastic surgeons and aestheticians. EltaMD is a leading physician-dispensed sun care brand with a unique positioning around broad-spectrum, everyday use, physician-dispensed sunscreen. Estimated 2017 net sales for PCA Skin and EltaMD combined approximate $100 million. Both brands are similar in size and are primarily sold through professional skin care channels and online. They are distributed in the U.S., China and certain other international markets and Colgate plans to continue to operate the brands independently after closing. The terms of the deals have not been released; are expected to close in the first quarter of 2018; and are not expected to have any impact on earnings in 2018.
Shares of Colgate-Palmolive have been trading above its historical valuation at 26 times estimated 2017 earnings, with the speculation as a potential buy-out candidate and, lacking any offers, the shares may decline to more normalized levels over time. However, positions in CL have done well for investors since joining the conservative list with an appreciation of 93.4%, before distributions. And the growing and well-covered dividend, yielding 2.2%, enhances long-term total return potential, especially when viewed on a risk adjusted basis.