Morningstar

Procter & Gamble Works to Stem Tide of Share Losses

Investors would be wise to stock up while shares trade at a 15%-20% discount to our valuation.

Securities In This Article
Procter & Gamble Co
(PG)

The main question leading up to

We don’t think P&G is opting for top-line gains at any cost. The firm is working to extract another $10 billion in costs, aiming to reduce overhead, lower material costs, and increase manufacturing and marketing productivity; this positively affected gross margins by 270 basis points. However, this gain was offset by higher input and transportation costs (110 basis points), unfavorable mix (120 basis points), lower pricing (80 basis points), foreign exchange (40 basis points), and one-time investments (60 basis points), leaving adjusted gross margins 140 basis points lower at just under 48%.

With fiscal 2018 results and 2019 guidance in line with our outlook, we see little change to our $98 fair value estimate, which is based on 3%-4% annual average sales growth and operating margins approaching the mid-20s over the next decade. The shares trade at a 15%-20% discount to our valuation, and with a nearly 4% dividend yield, we think investors would be wise to stock up.

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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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