Peltz Denied P&G Board Seat. Will He Contest?

Concluding a nearly three-month proxy battle,

We haven’t wavered from our stance that the addition of Peltz to the board would do little to accelerate the pace of change that is under way at the household and personal care firm. From our vantage point, it is already working to reduce complexity in its operations and appropriately refocusing its brand investments to more effectively align with evolving consumer trends, efforts that we expected would take time to yield material gains. In this vein, we surmise its decision to part ways with more than 100 brands over the past three years (which wrapped up in October 2016) evidences recognition it needs to be a more nimble and responsive operator in the highly competitive consumer product landscape. And as a result of these actions, we think it is poised to focus its financial and personnel resources on the highest-return brand and category opportunities, which should ultimately drive increasing sales and volume growth and aid the brand intangible asset source underlying its wide moat.

We don’t intend to alter our $94 fair value estimate (based on 4% annual sales growth in the longer term and 300 basis points of operating margin expansion to nearly 25% at the end of our 10-year explicit forecast) as a result of this news. Despite a low-single-digit down tick, shares generally trade in line with our valuation, but in the event of a more material pullback in its share price on concerns surrounding the competitive landscape, we’d likely suggest investors consider building a position.

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