Morningstar

P&G Attractive Despite Tepid Results

P&G Attractive Despite Tepid Results
Securities In This Article
Procter & Gamble Co
(PG)

Erin Lash: On the surface, Proctor and Gamble's fourth-quarter and full-year results left little to cheer about, with organic sales growth tapping in at just 1% and margin contraction at both the gross and operating income lines. However, we think the firm is laying the foundation for more solid gains longer term.

Sales continue to be hampered by intense competitive pressures in both its grooming and baby business, which were each down 2% to 3% on an organic basis. However, the remainder of its mix both did sales gains north of 3%, which we think evidences the efforts the firm has taken to eliminate and rationalize its brand mix and focus its resources on its highest return opportunities.

Further, the firm is not just looking to boast outsize sales gains, but rather is also working to extract efficiencies from its business and drive productivity savings, the fruits of which we anticipate it will invest behind both research and development and marketing spend, and ultimately support the brand intangible assets that underlay its wide economic moat.

As a result, we view the current discount of 15% to 20% relative to our $98 dollar fair value estimate as warranting an attractive opportunity for long-term investors to build a position in this wide-moat name.

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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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