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Why the Majority of Analysts Are Neutral on PG Stock

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Apr. 20 2017, Updated 9:37 a.m. ET

Risk-reward balance

22 Wall Street analysts cover Procter & Gamble (PG) stock. They’ve rated the stock a 2.4 on a scale of one (strong buy) to five (strong sell). Of the 22 analysts covering Procter & Gamble stock, 41.0% have rated the stock as a “buy” as of April 18. 50% of the analysts have rated the stock as a “hold,” and 9.0% rated the stock as a “sell.”

As of April 18, Procter & Gamble was trading at $90.8, which is about 2.0% below analysts’ 12-month price target of $92.5.

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Procter & Gamble is taking measures to accelerate sales growth by focusing on core brands, offering innovative products, and increasing brand awareness through effective marketing techniques. The company to some extent remained successful in improving its organic sales during the first half of 2017, as its major product divisions and key markets including the US (SPY) and China witnessed improvements.

Meanwhile, on the margins front, the company’s restructuring initiatives helped it to generate superior margins by lowering expenses. However, the consumer products industry as a whole is witnessing sluggish growth. Slow category growth and consumer uptake, a strong dollar, and macro challenges in developed and emerging markets are all taking a toll on the company’s performance.

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Recent downgrades

On March 6, B. Riley downgraded Procter & Gamble’s rating from “buy” to “hold” and also lowered its target price to $91.0 from $106. Earlier, on January 9, 2017, Goldman Sachs downgraded Procter & Gamble stock to “sell” from “neutral.”

Peer comparisons

Of the 23 analysts who have rated Colgate-Palmolive (CL), 13% have recommended a “buy” on the stock, and 87.0% have recommended a “hold.”

Meanwhile, of the 15 analysts covering Kimberly-Clark (KMB) stock, 7.0% have rated the stock as a “buy,” while 93.0% have rated it as a “hold.”

For Clorox (CLX) stock, 11.0% of the 18 analysts have rated the stock as a “buy,” 78.0% have rated it as a “hold,” and 11.0% have rated it as a “sell.”

We’ll discuss Procter & Gamble’s valuation in the next part of this series.

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