Morningstar

Peltz Joining P&G Board? No Big Deal

The wide-moat company is prudently reducing complexity in its operations and appropriately refocusing its brand investments to better align with evolving consumer trends, efforts that will take time to yield material gains.

Securities In This Article
Procter & Gamble Co
(PG)

Activist investor Nelson Peltz, who holds a stake in

We believe P&G’s decision to part ways with more than 100 brands over the past three years (which wrapped up in October 2016) is evidence that the company is working to be a more nimble and responsive operator in the highly competitive consumer product landscape. In our view, these actions position P&G to focus its financial and personnel resources on the highest-return opportunities from a brand as well as category perspective, which should ultimately drive accelerating sales and volume growth and aid the brand intangible asset source of its wide moat. We think the benefits of this focus are starting to surface--the company posted 2% organic sales growth in the fourth fiscal quarter in the face of intense competition and on top of similar growth a year ago--but it will take a few more quarters before we view this as sustainable.

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. The shares generally trade in line with our valuation, but if P&G's top-line and profit trajectory falters and its share price suffers, we’d suggest investors consider building a position.

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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