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Procter & Gamble: Fundamental Analysis

health care investing strategies Aug 12, 2020

 Ticker: PG

Rating: Overweight

Price Target: $148

Target Date: 12/31/2020



🔎 Stock Profile

Despite a stronger than average long term top-line revenue growth outlook relative to its peers, PG trades at a ~10% P/E discount to its peers. Looking at historical trailing P/E averages, PG trades slightly below its 10-year average discount vs. its peers as well. Due to their strong outlook and historical averages, we believe this discount relative to the market is unwarranted.


🔑 Key Takeaways

We are therefore reiterating our overweight rating on PG's strong Q4 results, as well as better than anticipated FY21 guidance per their management team. While PG’s 15% EPS beat in fiscal Q4 was similar to large beats from their peers, the key investor question is if PG's turnaround since late 2018 will continue from here. We see visibility on forward momentum as higher post strong Q4 results, driven by a few key data points:

1) We've seen recent reinvestment in their business which should continue to propel PG forward share gains.

2) Q4 strong gross margins confirms sustained gross margin upside potential. This is a key indicator for us.

3) Finally one of the stronger indicators is better than expected FY21 guidance of EPS growth. Given PG's historical conservatism, we view this as highly encouraging.

As such we continue to be long the name and recommend our price target as long dated - which will come once the market realizes their relative strength.