Morningstar

Peltz Unlikely to Drive Change at Undervalued P&G

Peltz Unlikely to Drive Change at Undervalued P&G
Securities In This Article
Procter & Gamble Co
(PG)

Erin Lash: After announcing a more than $3 billion ownership stake earlier this year, representing around 1 percent of shares outstanding, Nelson Peltz is now vying for a board seat at wide moat Proctor & Gamble. However, as we articulated in February, we think the firm is already taking prudent steps to right its ship, although we've long held that these efforts would take time to yield material improvement.

For one, P&G just closed the book on efforts to realign its brand portfolio, shedding more than 100 brands over the last few years, keeping a core 65. From our vantage point, these efforts stand to enhance its ability to focus its resources, both from a product innovation and marketing perspective on the highest return opportunities, ultimately aiding its brand intangible asset. Further, beyond bolstering its top-line prospects, P&G is also working to extract inefficiencies from its operations. However, we think that these efforts, rather than boosting profitability, ultimately stand to provide further fuel to reinvest behind its brands.

In light of all of the efforts that P&G is presently undergoing, we see little to suggest that Nelson Peltz's oversight stands to accelerate material change at the organization. However, with shares trading at a discount to our valuation, we'd suggest investors interested in the space keep wide moat Proctor & Gamble on their radar screens.

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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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