Proctor & Gamble Rises On Strong Q3 Results
Proctor & Gamble (NYSE: PG) has been trending higher since long before the pandemic began. The company’s value, growth, and yield combined to attract the attention of both the institutions and the analysts. The institutions have been net buyers for 7 of the last 9 quarters and they are still buying today. The sum of institutional activity has their ownership up to 63% and rising and it is worth noting the activity picked up in Q1 of 2022. Institutional buying netted about 1.5% of the market cap in Q1and helped to put a bottom in the price action. As for the analysts, none of them have come out with commentary since the release of the FQ3 results but we think it’s coming. The results were better than expected, revealing strength in consumer trends, and the company guided higher.
The current consensus on the stock is a weak Buy and that has held steady over the last 12 months. What hasn’t held steady is the consensus price target which trended higher in the 12-month, 3-month and 1-month comparisons. The consensus price target assumes the stock is fairly valued trading at its all-time high, however, but it will probably move higher now. The latest targets were released in early April, about two weeks before the earnings release, and they have the stock trading closer to $173.50 which is about 6% of upside for share prices and a new all-time high.
Proctor & Gamble Leans On Pricing To Produce Results
Proctor & Gamble had a good quarter despite the need to lean on pricing to preserve margin. The company reported $19.4 billion in net revenue for a gain of 7.1% over last year. The revenue also beat the consensus by 380 basis points but that is offset by a 5% increase in pricing. The good news is that not all of the gains were made via price increases, the company’s core organic sales ex FX/acquisition/divestiture grew by 10% aided by a 3% increase in volume shipments and a 2% impact from a favorable mix.
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Moving down to the margin, there was some margin pressure at both the gross and operating levels but price increases and a decrease in SG&A expense helped to offset them. On the bottom line, the GAAP and core EPS of $1.33 per share is up 6% versus the 7.1% increase in revenue and aided by share repurchases.
Turning to the guidance the company is raising its guidance for revenue based on consumer strength and pricing increases. Execs are now expecting revenue in a range of +4% to +5% versus the previous up 3% to 4% but the EPS outlook is unchanged. The takeaway is that margin is expected to come under pressure but earnings should come in as expected keeping the dividend and capital return program intact.
Proctor & Gamble On Track For Dividend Increase
To say that Proctor & Gamble is on track for a dividend increase is an understatement. The company has been increasing the payout for the last 65 years and is still only paying out 60% of its earnings. Considering the distribution CAGR is about 5%, and the outlook for earnings growth is about 5%, we see the company maintaining its trend of distribution increases for the next few years at least.
Shares of Proctor & Gamble surged more than 2.5% following the Q3 release and may move higher. The surge is a continuation of a rally/rebound that formed a few weeks ago and may take the stock to a new all-time high. The risk now is resistance at the current all-time high near $165. A move above that level would be bullish for this consumer staple the institutions are buying and could take the stock up another $20 or so.
Companies in This Article:
| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| Procter & Gamble (PG) | $161.50 | +0.6% | 2.50% | 26.39 | Moderate Buy | $168.88 |
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
