Procter & Gamble Raises FY2021 Guidance; Stock Has 20% Upside Potential

Procter & Gamble, the world’s largest maker of consumer packaged goods, reported better-than-expected earnings in the fiscal second quarter and said it has raised its outlook for fiscal 2021 all-in sales growth to a range of 5-6% from the previous forecast of 3-5%.

Cincinnati, Ohio-based consumer goods corporation said its net sales rose 8% to $19.7 billion in the second quarter fiscal year 2021. Diluted net earnings per share increased 4% to were $1.47 and Core-EPS surged 15% to $1.64, beating the Wall Street consensus estimate of $1.51 per share.

Procter & Gamble raised its outlook for organic sales growth to a range of 5-6% from 4-5%. The Company said it now expects fiscal 2021 GAAP diluted net earnings per share growth in the range of 8-10% from fiscal 2020 GAAP EPS of $4.96. In addition, P&G upgraded their guidance for core earnings per share growth to a range of 8-10% from 5-8% versus fiscal 2020 core EPS of $5.12.

Procter & Gamble’s (PG) strong quarter should lift shares, improve sentiment for (lagging) HPC group -stock remains a Franchise Pick. We are focused on a “stronger for longer” theme in HPC w/ ’21 a transition year as the public gradually overcomes its trepidation toward the vaccine, though certain consumer behaviours sustain (cleaning, health & wellness, etc.), which should benefit PG and the group,” noted Kevin Grundy, equity analyst at Jefferies.

“At 22x P/E, PG (and our “core” HPC / beverages basket) are near relative lows vs. the S&P 500 last seen during the 08-09 downturn, leaving risk-rewards skewed to the upside. PG’s strong quarter should drive shares higher and offers a positive read-through for the group as Procter kicks off earnings season.”

However, Procter & Gamble shares traded 1.2% lower at $132.0 on Wednesday; the stock rose over 11% in 2020.

Procter & Gamble Stock Price Forecast

Twelve analysts who offered stock ratings for Procter & Gamble in the last three months forecast the average price in 12 months at $157.00 with a high forecast of $169.00 and a low forecast of $130.00.

The average price target represents an 18.82% increase from the last price of $132.14. From those 12 analysts, eight rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $165 with a high of $184 under a bull scenario and $103 under the worst-case scenario. The firm currently has an “Overweight” rating on the consumer goods corporation’s stock.

Several other analysts have also recently commented on the stock. JP Morgan lowered the target price to $159 from $163. Jefferies decreased the price objective to $168 from $169. Smith Barney Citigroup boosted their price objective to $165 from $159.

In addition, Truist boosted their price objective to $150 from $125. Wells Fargo & Company set an “overweight” rating and a $160.00 price objective for the company.

Equity Analyst’s View

“We expect a positive reaction to a strong FQ2 with a 2.5% top-line and 10.8% operating profit beat vs consensus, driven by strong 8% organic sales growth and an 80-bps gross margin beat vs consensus. Importantly, each segment organic sales growth was 5% or above, giving us greater confidence that PG momentum can continue going forward, as results were not narrowly driven by any one segment benefitting from COVID-19 demand. PG essentially flowed through almost all of Q2 EPS upside vs consensus to FY21 EPS guidance, which moved up by 250 bps at its midpoint, but we still view as overly conservative,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“We believe strategy tweaks can sustain PG long-term top-line growth in the 4% range. In the US, a strong breadth of performance and share gains give us confidence that market share momentum is sustainable and supports long-term top-line growth above HPC peers. We see continued GM expansion with moderate commodity headwinds and a solid competitive environment. PG trades at 23x CY22e EPS, a discount to HPC peers CLX, CL and CHD, and looks compelling given our call for higher long-term PG growth.”

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