You can find Procter & Gamble Co.PG products in almost every household, from kitchens to bathrooms. Despite the company’s well-known and widespread products, one analyst has raised concerns that P&G may struggle to increase sales volumes without increasing prices.
The company’s best-selling brands include Pantene, Head & Shoulders, Gillette, Old Spice, Crest, Oral-B, Dawn, Tide, Gain, Charmin, Bounty, Pepto-Bismol, and Pampers, among several others. Despite its history of growth, one analyst believes that there are some warning signs for investors to watch out for.
Procter & Gamble analyst ratings reveal that Truist Securities downgraded its rating on the stock from buy to hold on May 18. Truist Securities went on to state that “We believe PG as a company is operating at the highest level in the 20 years that we have covered the stock. We simply do not see the catalysts on the horizon to recommend new money to the name at current levels.”
Will Customers Accept Price Increases?
In common with other companies from various industries, P&G has raised its prices in the past 18 months or so. Despite most analysts’ belief that brand loyalty ensures P&G’s core customers will not search for cheaper alternatives, Truist is skeptical that this will be the case.
Truist analyst Bill Chappell wrote, “We believe investors may be overreading the company’s strong F3Q23 results, believing that PG’s core consumer is largely unaffected by price increases taken over the past 18 months.” He also noted that declining shipment volumes were visible in P&G’s fiscal third-quarter earnings report, although the company has consistently exceeded both revenue and earnings per share expectations.
Decrease in Shipment Volumes
The report states that an increase in organic sales of 7% “was driven by a ten percent increase from higher pricing and a one percent increase from favorable product mix, partly offset by a three percent decrease in shipment volumes.” P&G’s grooming; fabric and homecare; and baby, feminine, and family care segments all recorded a volume decline. However, the beauty and healthcare segments each demonstrated 1% volume growth.
Chappell pointed out that declining shipment volumes were evidence of demand destruction, where consumers either use fewer of P&G’s products or switch to cheaper brands. Several companies, such as Target Corp. and Home Depot Inc., have warned that consumer demand is softening because of rising prices.
P&G has divested itself of several hundred products in an attempt to re-focus and stabilize sales growth over the past decade, instigated by activist investors such as hedge fund manager Nelson Peltz. For instance, it sold its fine fragrance, color cosmetics, salon professional, hair color, and styling businesses to Coty Inc. in 2016, with a brand portfolio including well-known names like Covergirl, Max Factor, and Miss Clairol. Additionally, Mars, Inc. purchased Iams premium pet foods and several other brands, while Berkshire Hathaway, Inc. acquired Duracell after it was spun off by P&G in 2014.
As part of both the Dow Jones Industrial Average and the S&P 500, investors are likely to find Procter & Gamble in several large-cap fund portfolios. The dividend yield of 2.45% and a 68-year track record of dividend payouts, earning the company a spot on MarketBeat’s Dividend Kings list, make it an appealing option for many investors.
Support at 50-Day Average
P&G shares closed at $153.17 on May 19 and found support at their 50-day moving average. The stock had surpassed its flat base by April 21, following the earnings report for the third quarter, with a buy point of $154.90. Analysts have given it a consensus rating of “moderate buy” and a price target of $161.50, a 5.44% increase from its current value. In the previous month, P&G shares had risen by 10.07%, while in the last year, they had risen by 10.69%.
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The article “Analyst Flags Concerns About P&G Growth Despite Earnings Beat” first appeared on MarketBeat.