Investing.com -- Shares in Colgate-Palmolive (NYSE:CL) hovered around the flatline in early US trading on Monday after analysts at Wells Fargo downgraded their rating of the toothpaste maker.
In a note to clients lowering their outlook to "Underweight" from "Equal Weight", the analysts argued that a recent "epic run" higher in the stock is set to see "normalization ahead."
New York-based Colgate-Palmolive's stock price has surged by more than 30% so far this year, buoyed in large part by a wider investor rotation into US consumer staples stocks that has been fueled by worries around a downturn in the US economy.
Drinks maker Coca-Cola (NYSE:KO), as well as other well-known sector players like Walmart (NYSE:WMT) and Kraft Heinz (NASDAQ:KHC), have outperformed the benchmark S&P 500 over six of the past eight weeks, according to Bloomberg data cited by the Financial Times.
For Colgate-Palmolive in particular, recent quarters have been marked by strong returns, with organic sales outperforming many of these big-name peers.
In July, the company also increased its organic sales and annual profit forecasts, citing resilient demand for its products despite a raft of recent inflation-linked price hikes. The higher prices have helped to offset an uptick in raw materials and packaging costs, supporting margins and backstopping an uptick in advertising spending.
Yet the analysts at Wells Fargo said Colgate-Palmolive's growth is now set to "normalize" versus its peers, while its global toothpaste share "may be on the verge of drifting lower."
Even still, they noted that they do not believe the firm is "broken," but on the cusp of its performance moderating against its rivals.
"After a cycle driven by accelerating organic sales, expanding gross margins, and strong investment back into advertising, we see [Colgate-Palmolive]'s delivery reverting to a more balanced model ahead. We still expect solid delivery, but with the stock historically expensive (absolute and relative to peers), we see risk of normalization (back to historicals) as valuation glides toward peers trading at much cheaper multiples," the analysts said.