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Procter & Gamble Is Beginning A Turnaround, BofA Says In Upgrade

Procter & Gamble Is Beginning A Turnaround, BofA Says In Upgrade
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A bullish case can be made for multinational consumer goods company Procter & Gamble Co (NYSE: PG) as the company embarks on a turnaround, according to Bank of America Merrill Lynch.

The Analyst

Analyst Olivia Tong upgraded Procter & Gamble from Neutral to Buy with a price target lifted from $95 to $108.

The Thesis

Procter & Gamble started showing signs of a turnaround in its fiscal first quarter (September-ending) results, where organic sales were the strongest since 2014, with a 4-percent year-over-year increase, Tong said in the Thursday upgrade note. (See her track record here.)

Since then, the analyst's channel checks are pointing to continued momentum, especially in the high-margin U.S.

Recent price increases are favorably received by consumers, and commodity pressures should ease throughout the fiscal year, Tong said. 

Procter & Gamble's defensive nature could prove to be attractive to investors in the event that broader macro trends start to deteriorate, the analyst said. Encouragingly, active fund managers remain underweight the stock as of October, despite a "strong move" higher since the middle of 2018, she said. 

The correlation between Procter & Gamble's margins and commodity fluctuations is most pronounced over a nine-month lag, Tong said.

Investors should expect to see a boost to margins through the fiscal fourth quarter due to the recent dip in crude oil prices, she said. This impact will be more evident in the U.S., where its margins are already three times that of its international business.

'Solid Tone' From Management

Procter & Gamble hosted investors Wednesday at its Cincinnati headquarters, and management's "solid tone" was consistent with BofA's stance that sales momentum is improving, the analyst said. Some investors in attendance raised the question of whether consumers pre-buying products ahead of upcoming price increases inflated recent results, Tong said. Procter & Gamble responded that, if anything, pre-buying is more of a benefit to the fiscal second quarter, as the impact to the fiscal first quarter was quite modest, she said. 

Price Action

Procter & Gamble shares were up 2.45 percent at $96.34 at the time of publication Thursday. 

Related Links:

Jefferies: Procter & Gamble Won't Look Much Better Than This

An Upgrade For A Defensive Sector

Photo by Crisco 1492/Wikimedia. 

Latest Ratings for PG

Jan 2019BerenbergUpgradesSellHold
Jan 2019Evercore ISI GroupInitiates Coverage OnOutperform
Jan 2019Bank of AmericaReiteratesBuyBuy

View More Analyst Ratings for PG
View the Latest Analyst Ratings

Posted-In: Bank of America Merrill Lynch Consumer Goods Olivia TongAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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