uploads///Procter Gamble stock

Procter & Gamble Stock: Attractive but Pricey


Oct. 1 2019, Updated 11:56 a.m. ET

  • So far, Procter & Gamble stock has outperformed the broader markets this year.
  • Procter & Gamble will likely sustain the momentum. However, the stock looks expensive and faces difficult YoY comparisons.
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Procter & Gamble stock looks attractive

Amid market volatility, consumer stocks have been in the limelight. The stocks offer stability and growth. The sector’s defensive nature makes the stocks a viable investment option. Meanwhile, steady dividend growth continues to boost shareholders’ returns. Procter & Gamble (PG) is a leading consumer product company. So far, the stock has outperformed the broader markets this year.

Notably, Procter & Gamble stock has increased 35.3% on a YTD (year-to-date) basis as of Monday. The stock has beaten the broader markets by a wide margin. The S&P 500 Index has risen 18.7% during the same period.

Investors’ favorable outlook on the sector impacted the growth. Also, Procter & Gamble’s strong financial performance supported the upside in its stock.

Procter & Gamble posted strong organic sales growth in the past several quarters. In fiscal 2019, the company’s organic sales increased 5%. During the last reported quarter, the organic sales rose 7%—the best level in a decade. Innovation and higher pricing continue to drive Procter & Gamble’s organic sales.

Higher underlying sales and productivity savings are driving the company’s core margins, which is encouraging. Meanwhile, the earnings continue to beat analysts’ expectations. Notably, Procter & Gamble has beat analysts’ EPS expectations for 17 consecutive quarters.

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Besides strong sales and earnings, Procter & Gamble continues to boost shareholders’ returns through higher dividends and share repurchases. Procter & Gamble has increased its dividends for 63 consecutive years. This year, the company raised its quarterly dividend 4%. The company returned $12.5 billion to its shareholders in fiscal 2019 in the form of dividends and share buybacks.

Stock looks expensive

We expect Procter & Gamble to sustain the sales momentum due to premium innovation and higher pricing. Meanwhile, productivity savings will likely support the company’s margins. However, Procter & Gamble faces tough YoY (year-over-year) comparisons, especially in the second half of fiscal 2020, which could limit the growth rate. Also, the stock looks expensive on the valuation front.

Procter & Gamble stock trades at 25.0x its forward earnings estimate, which is a multiyear high. Also, the stock trades at a higher multiple compared to the peer group average of 24.6x. Procter & Gamble stock trades at 17.8x its next 12-month EV-to-EBITDA multiple, which is also above the peer group average of 16.3x.

The company’s high valuation and an expected deceleration in the growth rate could restrict the upside in the stock. Analysts’ consensus target price on Procter & Gamble stock indicates no upside. Analysts have a target price of $123.73, which is almost on par with its closing price on Monday.


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