Procter & Gamble Sales Jump 9%, Revises Forecast; Target Price $166 in Best Case

Procter & Gamble Co, an American multinational consumer goods corporation, reported its net sales rose 9% year-on-year to $19.3 billion in the first quarter fiscal year 2021 and raised its full-year sales and earnings forecast, sending its shares up over 1.2% on Tuesday.

The company which manufactures and sells consumer goods in over 180 countries said its diluted net earnings per share rose 20% to $1.63 from a year earlier. That was largely driven by increases in consumer demand for home cleaning products during the COVID-19 pandemic

“Another strong quarter through a difficult environment – Procter & Gamble (P&G) remains a stock to own through the recession: Despite the challenging macroeconomic backdrop, P&G delivered a solid quarter, including +9% organic sales, GM % upside, and increased FY21 org sales and EPS guidance,” said Kevin Grundy, equity analyst at Jefferies.

“We view the co.’s FY21 EPS guidance as conservative and continue to see upside to Street estimates with (under-appreciated) structurally higher long-term growth (notably health, hygiene, cleaning, home care) likely to drive further multiple expansion for the stock. Our $166 price target is based on 27x P/E and 28x EV/ULFCF.”

The maker of Tide and Ariel detergent raised its outlook for fiscal 2021 all-in sales growth to a range of 3%-4% from a range of 1%-3% versus the prior fiscal year. The revised range includes an estimated 1% negative impact from foreign exchange.

The company raised its outlook for organic sales growth to a range of 4%-5% from a range of 2%-4%. P&G raised guidance for core earnings per share growth from a range of 3%-7% to a range of 5%-8% versus fiscal 2020 core EPS of $5.12.

At the time of writing, Procter & Gamble shares traded 1.26% higher at $143.7 on Tuesday; the stock is up about 15% so far this year.

Executive comments

“We delivered another strong quarter of organic sales growth, core earnings per share and cash returned to shareowners, enabling us to increase our outlook for fiscal year results,” said David Taylor, Chairman, President and Chief Executive Officer.

“Our near-term priorities continue to be employee health and safety, maximizing the availability of P&G products for consumers around the world, and helping society meet the challenges of the COVID-19 crisis. We remain firmly focused on executing our strategies of superiority, productivity, constructive disruption and improving P&G’s organization and culture to deliver balanced top-line and bottom-line growth along with strong cash generation.”

Procter & Gamble Stock Price Forecast

Twelve analysts forecast the average price in 12 months at $146.92 with a high forecast of $166.00 and a low forecast of $128.00. The average price target represents a 2.26% increase from the last price of $143.68. From those 12 equity analysts, eight rated “Buy”, four rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $158 with a high of $177 under a bull scenario and $99 under the worst-case scenario. Truist securities raised their stock price forecast to $150 from $125; Berenberg upped their target price to $149 from $136; BofA Global Research upgraded the price objective to $158 from $153.

Several other analysts have also recently commented on the stock. The Procter & Gamble had its price objective boosted by Jefferies Financial Group to $166 from $153. Jefferies Financial Group currently has a ‘buy’ rating on the stock. Deutsche Bank Aktiengesellschaft raised their target price to $150 from $145 and gave the stock a buy rating.

Analyst Comments

“We are ‘Overweight’ Procter & Gamble. We believe strategy tweaks can sustain Procter & Gamble long-term topline growth in the 4% range. In the U.S., a strong breadth of performance and share gains give us confidence that market share momentum is sustainable and supports LT topline growth above HPC peers. We see continued GM expansion with moderate commodity headwinds and a solid competitive environment,” said Dara Mohsenian, equity analyst at Morgan Stanley.

“PG trades at 23x CY22e EPS, a discount to HPC peers CLX, CL and CHD, and looks compelling given our call for higher LT PG growth.”

Upside and Downside Risks

Upside: Favorable pricing environment, cost-cutting upside, higher market share gains in key categories, COVID-19 related pantry loading tailwinds, and moderate currency & commodity – highlighted by Morgan Stanley.

Downside: Macro pressures, unfavourable pricing environment, market share losses from competition, currency & commodity pressures.

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