Procter & Gamble Gets Focused, Jefferies Initiates With A Buy

Procter & Gamble Co PG appears poised for top-line growth. Jefferies’ Kevin Grundy initiated coverage of the company with a Buy rating and a price target of $95. The analyst expects the company to generate organic sales growth of 3.5 percent by FY18, which is in-line with the industry, but ahead of the expectation of ~2.5-3 percent.

Procter & Gamble’s organic sales growth is expected to be driven by its “slimmed down portfolio, better focused on geos/categories where it can (and should) win,” analyst Kevin Grundy said. An inflection in organic sales and EPS upside are likely to act as catalysts for the company’s shares.

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Long-Awaited Topline Recovery In Sight

Grundy mentioned that Procter & Gamble is expected to return to 3.5 percent organic sales growth by FY18, from 1 percent average growth during FY15-FY16, driven by:

• EMs: A return to market growth rates of 5-7 percent, versus a decline of 1 percent in FY16
• US: Nielsen data reveals 2 percent industry growth year-to-date “on P&G led innovation,” up +1.5 points since 2013-2014

“P&G has shed 15%/5% of sales/profits, streamlined its portfolio, and continues to rationalize its cost structure. While now better positioned to win, an inability to improve org sales trends and/or TSR (P&G has underperformed the XLP in 8 of last 10 years) likely will (and should) lead to further changes,” the analyst wrote.