Procter & Gamble Works to Stem Tide of Share Losses
Investors would be wise to stock up while shares trade at a 15%-20% discount to our valuation.
The main question leading up to
We don’t think P&G is opting for top-line gains at any cost. The firm is working to extract another $10 billion in costs, aiming to reduce overhead, lower material costs, and increase manufacturing and marketing productivity; this positively affected gross margins by 270 basis points. However, this gain was offset by higher input and transportation costs (110 basis points), unfavorable mix (120 basis points), lower pricing (80 basis points), foreign exchange (40 basis points), and one-time investments (60 basis points), leaving adjusted gross margins 140 basis points lower at just under 48%.
With fiscal 2018 results and 2019 guidance in line with our outlook, we see little change to our $98 fair value estimate, which is based on 3%-4% annual average sales growth and operating margins approaching the mid-20s over the next decade. The shares trade at a 15%-20% discount to our valuation, and with a nearly 4% dividend yield, we think investors would be wise to stock up.
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