P&G Not Standing Still, Shares Attractive

Erin Lash: Proctor & Gamble shares were again punished after third-quarter results that included languishing sales. More specifically, organic sales ticked up just 1% in the quarter, driven entirely by higher volumes and more favorable mix, which was offset by lower prices.

The sales constraints were particularly concentrated in two of its segments, specifically grooming and baby care. However, we don't think the firm is standing still, but rather, is investing to correct these challenges. For instance, in grooming, which makes up about 10% of its consolidated total, the firm has been recalibrating pricing, investing in new products, and has launched its own subscription-based sales model.

The evidence that these efforts are gaining traction was cited by management, in that U.S. male shave care volume has been up for the fourth quarter in a row. We think the skepticism, however, regarding this business is similar to what was realized within its beauty business over the last several years. However, more recently, investments behind messaging, packaging, and product have resulted in beauty segment sales that have clocked in at a mid-single-digit clip each of the past few quarters.

As a result, we haven't wavered from our stance that the firm's more focused portfolio of brands should enable it to tailor its investments behind product innovation and marketing support to draw broad-based sales growth across its portfolio longer term.

With shares trading at a 25% discount to our valuation and boasting a 4% dividend yield, we think investors would be wise to stock up on wide-moat name.