P&G Has Topped Out for Now -- Heard on the Street
21 January 2021 - 2:41AM
Dow Jones News
By Aaron Back
Everything is going Procter & Gamble's way. Investors should
ask whether this is as good as it gets for a while.
The consumer-products giant on Wednesday reported excellent
earnings for the three months through December. Organic sales,
which adjust for currency fluctuations, acquisitions and
divestitures, rose 8% from a year earlier. The company raised its
sales guidance for the full fiscal year ending in June to a range
of 5% to 6% growth from 3% to 4% previously and boosted its
share-buyback plans.
The maker of Tide detergent, Bounty paper towels and Charmin
toilet paper has benefited handsomely from the coronavirus
pandemic. And thanks to its diverse portfolio, even categories such
as shaving and beauty, not natural beneficiaries of the
stay-at-home economy, have performed reasonably well. Grooming, for
instance, saw 6% organic sales growth in the quarter thanks to
surging sales for appliances like electric razors as consumers
continue to shun barbers.
Yet P&G shares were basically flat in morning trading and
are down around 6% since P&G reported similarly stellar results
three months ago. Investors rightly worry that sales of household
staples will fall as the pandemic fades and that its shares remain
somewhat expensive at 23 times forward earnings, according to
FactSet.
Perhaps a bigger challenge for the stock is that it doesn't look
like a good fit for any post-pandemic market narrative. In a
reflationary boom, it wouldn't benefit from the likely rotation
into value stocks and cyclicals. Under a stagnation scenario it
might normally be attractive as a steady dividend payer, but its
current 2.4% yield isn't especially enticing compared with other
consumer-staples companies at the moment -- particularly food and
beverage stocks: Coca-Cola's yield is 3.4%, General Mills' 3.7%,
and PepsiCo's 2.9%.
The lukewarm reception is out of management's control. P&G's
strategy of continuing to invest heavily in innovation to maintain
product superiority in its categories is the right one for the long
haul, but it looks like the wrong stock for this specific
moment.
Write to Aaron Back at aaron.back@wsj.com
(END) Dow Jones Newswires
January 20, 2021 10:26 ET (15:26 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
Procter and Gamble (NYSE:PG)
Historical Stock Chart
From Mar 2024 to Apr 2024
Procter and Gamble (NYSE:PG)
Historical Stock Chart
From Apr 2023 to Apr 2024