Morningstar

Market Still Underestimates P&G

Despite the recent runup, shares of this critical retailing partner still look attractive.

Securities In This Article
Procter & Gamble Co
(PG)

Even after ratcheting back our current-year sales forecast to reflect a more pronounced hit from unfavorable foreign currency movements (which management now pegs at 7%, up from 5%-6%), the impact to our $90 fair value estimate is negligible. Longer term, our forecast for annual sales growth amounts to around 4%, with just less than two thirds of annual growth resulting from higher volume and the remainder from increased prices and improved mix. We expect operating margins of 23% (about 400 basis points above the average of the past five years) as the firm reinvests a portion of any savings realized to support the intangible asset source of its wide moat.

We haven't wavered from our stance that with its leading brand mix and vast resources, P&G is a critical partner for retailers, which are reluctant to risk costly out-of-stocks with unproven suppliers, supporting the firm's competitive edge. But we still don't believe the market shares our assertion regarding the firm's competitive prowess and ability to reignite its top line. Despite the recent runup in the share price, we still view P&G's valuation as attractive.

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About the Author

Erin Lash, CFA

Sector Director
More from Author

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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