P&G Sales Bounce, Shares Cheap
Four of the wide-moat firm's five segments boasted sales gains in the mid- to high-single-digit range in the first quarter.
Across the consumer products sector, much angst has centered on the ability of firms to reignite sales and offset inflationary headwinds, and
Despite this, we’ve never thought sustainable sales gains at P&G would chart a straight path north, particularly against an industry backdrop of tepid pricing and competitive pressures, but we believe this performance is evidence that P&G is investing to support the brand intangible assets that underpin its wide moat. We intend to incorporate a slightly larger hit to sales and profits from unfavorable foreign exchange in the current year (now anticipated to be a drag of 3%-4%, down from around 2% prior), but don’t see a change to our $97 fair value estimate, which is based on 3%-4% annual sales growth in the longer term and 300 basis points of operating margin expansion to nearly 25% at the end of our explicit forecast. Even after accounting for the high-single-digit rise in shares, we view the stock as undervalued, trading at around a 10% discount to our valuation.
Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.