Procter & Gamble's Strategy And Portfolio Changes Have Paid Off, Says Analyst

Raymond James analyst Olivia Tong reiterated an Outperform rating on the shares of Procter & Gamble Co PG and raised the price target from $165 to $170.
For PG’s 3QF23, the analyst models 5% y/y organic sales growth, driven by pricing +9 points, offset by a 4% decline in volume.
The price forecast is flat sequentially as it assumes no incremental price action versus FQ2, while the volume forecast could prove conservative if sell-in is more closely aligned to sell-through, the analyst said.
Supply shortages in Feminine Care and Fabric Care are improving, and PG is investing in LT capacity, including a Fabric Care facility in Arizona slated for 2025 opening., added the analyst.
The analyst thinks as 2023 progresses, sales growth will become more dependent on volume as price actions begin to lap.
The analyst models gross margins down 130 basis points y/y and operating margins down 110 basis points, as the impact of decelerating input costs is more material in 2H.
As of last quarter, PG forecasted FY23 after-tax headwinds of $2.6 billion from commodities/freight and $1.3 billion from FX, which should see some relief, the analyst added.
The analyst raised the EPS estimate by $0.02 to $5.83.
The target price reflects the defensiveness of PG’s portfolio, improved execution over the last several years, steady and leading market shares, and balanced revenue and profit growth, said the analyst.
The strategy and portfolio changes over the last several years have clearly paid off, driving improved top and bottom-line growth.
Near-term macro headwinds present risk, but PG’s top-tier pricing power and price-laddered portfolio across a relatively non-discretionary portfolio should allow it to hold share, added the analyst.
The company’s robust cost savings initiatives should drive faster earnings growth. All these factors, the analyst feels, should allow PG to continue trading at a premium to its peers.
Price Action: PG shares are trading higher by 0.30% at $150.23 on the last check Friday.

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