Morningstar

Procter & Gamble Is Laying a Solid Foundation

We're maintaining our $96 fair value estimate and think investors should keep this wide-moat name on their radar.

Securities In This Article
Procter & Gamble Co
(PG)

On the heels of its modest boardroom victory--denying activist investor Nelson Peltz (who owns around 1% of outstanding shares) a seat at the table--

In our view, P&G's top priority remains executing on its strategic agenda. We think much attention over the near term will focus on the top line, where sustainable gains have failed to materialize over the recent past. But we think P&G is rightly focused on extracting costs--the fruits of which aided operating margins to the tune of 190 basis points despite the hit from input cost inflation--reflecting aims to reduce overhead, lower material costs, and increase manufacturing and marketing productivity. We don’t think these efforts merely stand to bolster profits, but we think the company will prudently allocate these savings to fuel added brand spending with a bent toward launching value-added new products around the world and marketing this fare to consumers. We expect P&G will direct 3% and 11.5% of sales to research and development and marketing, respectively, up from historical levels of less than 3% and around 11% each year.

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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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