Morningstar

P&G Sales Bounce, Shares Cheap

Four of the wide-moat firm's five segments boasted sales gains in the mid- to high-single-digit range in the first quarter.

Securities In This Article
Procter & Gamble Co
(PG)

Across the consumer products sector, much angst has centered on the ability of firms to reignite sales and offset inflationary headwinds, and

Despite this, we’ve never thought sustainable sales gains at P&G would chart a straight path north, particularly against an industry backdrop of tepid pricing and competitive pressures, but we believe this performance is evidence that P&G is investing to support the brand intangible assets that underpin its wide moat. We intend to incorporate a slightly larger hit to sales and profits from unfavorable foreign exchange in the current year (now anticipated to be a drag of 3%-4%, down from around 2% prior), but don’t see a change to our $97 fair value estimate, which is based on 3%-4% annual sales growth in the longer term and 300 basis points of operating margin expansion to nearly 25% at the end of our explicit forecast. Even after accounting for the high-single-digit rise in shares, we view the stock as undervalued, trading at around a 10% discount to our valuation.

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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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