Procter & Gamble (PG) stock increased 3.5% today. Earnings per share: $1.37 vs. $1.32 expected. Revenue: $20.07 billion vs. $19.32 billion expected.
The company’s earnings and revenues both topped analyst expectations, as higher prices helped offset lower demand for its products. It also raised its forecast for organic sales growth for fiscal 2023 to 6%, up from its prior range of 4% to 5%.
The company is one of the largest consumer goods companies in the world, with a market capitalization of over $370 billion. PG’s products include a wide range of essential household and personal care items, such as diapers, detergent, toothpaste, shampoo and kitchen towels.
PG’s stock has performed well over the past few years. The stock has increased by more than 117% over the past five years, although decreased 3% in the past year. PG’s stock is trading at a price-to-earnings ratio of 22, which is slightly below its historical average.
Bulls:
1. P&G’s sales may grow faster than expected if retailers and consumers continue to prefer leading brands. As a leading manufacturer of household and personal care products with significant market share, P&G is a valued partner for retailers and maintains a strong brand intangible asset moat. P&G has the resources to develop and promote new products, driving customer traffic to stores and e-commerce platforms and enhancing retailer relationships.
- P&G could direct its brand spending more effectively to the highest-return areas by narrowing its product mix.
- If efficiency is as ingrained in P&G’s culture as management suggests, the company could save even more money by reducing overhead and increasing yields on its manufacturing footprint and marketing investments.
Bears:
1. P&G’s beauty segment, which accounts for nearly one-fifth of the company’s total sales, has been disrupted by travel retail restrictions imposed around the world in response to the COVID-19 pandemic. These challenges could reemerge if mobility restrictions are reinstated.
- Rising prices throughout the grocery store, rising gas prices, and mounting interest rates could prompt consumers to trade down to lower-priced alternatives in the near term.
- Foreign-exchange volatility could hamper profits over time, as P&G makes and sells its products in different geographic regions.
P&G’s fair value estimate is increased to $126 from $125 after assessing its second-quarter marks, to reflect the benefit of time value. The revised valuation implies fiscal 2024 price/adjusted earnings of 21 times and an enterprise value/adjusted EBITDA of 16 times. However, the long-term outlook is not wavering, which calls for 3%-4% annual sales growth and nearly 25% operating margins in fiscal 2032, up from an average of 22.4% over the past five years.
Overall, PG is a good investment for investors who are looking for a stable and growing company with a strong brand and a long history of profitability. However, investors should be aware of the company’s high valuation and its exposure to risks such as currency fluctuations and increased competition such as private label products.
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