P&G’s Competitive Edge, Future Sales Growth Underappreciated
Focusing on its core business has slowed short-term growth for this wide-moat giant, but it sets the stage for profitable growth in the future, writes Morningstar’s Erin Lash.
We don’t expect to change our $90 fair value estimate for wide-moat
Management maintained its top-line guidance for the full year (June year-end)--calling for a low-single-digit increase in organic sales--but narrowed its EPS range to down 3%-6% from down 3%-8% (and anticipates a negative 9% hit from unfavorable foreign exchange). We continue to believe 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 wide moat. In that vein, P&G strikes us as an attractive investment, as the market's confidence in its competitive edge and ability to drive accelerating sales growth (to a mid-single-digit level over the next several years) has yet to materialize, and we’d recommend investors consider building a position in the name.
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