P&G Seen as Undervalued in Spite of Recent Highs

Procter & Gamble

Procter and Gamble’s stock has done very well over the last year, up 43% from where it sat last April. Barclay’s believes that it should go even higher, based upon its solid earnings.

Procter and Gamble may not quite be a household name, but many of their products sure are. The company has been making consumer products since 1837 when it was founded by soap makers William Procter and James Gamble.

Things really started to take off for them when they won the contract to supply soap and candles to the Union Army during the civil war, and in the 1880’s, invented an inexpensive, floating soap called Ivory. They still make soap products, and the term soap opera came from P&G’s substantial advertising during these television programs.

They are much, much more than just a soap company these days, and their long list of brands read like a hit parade of consumer goods. Among their more popular offerings are Olay, Gillette, Pampers, Tide, Pantene, Metamucil, Max Factor, Vidal Sassoon, Ivory, Vicks, Mr. Clean, Head and Shoulders, Johnson and Johnson, Crest, Gain, Old Spice, Clairol, Secret, Folgers, Iams, Duracell, Braun, Bounty, and a host of other brands.

To say that Procter and Gamble is well diversified in the consumer products segment would be an understatement. They combine a long history of a good understanding of the needs of consumers and the ability to use marketing to create demand for them, which they continue to master today.

P&G Has Been an All-Weather Stock Lately

Perhaps the most impressive part of the very impressive rise in stock price that P&G has enjoyed over the past year is how they did during the 20% market pullback between last October 3 and December 24. P&G traded at $83.03 a share on October 3, and ended the mini-bear market at $87.36. This cashes out to a 5% gain in less than 3 months in the worst market environment we have seen in years.

When just about every popular stock takes a pretty big hit, but yours goes up very nicely, this says a lot, and the story is about how well-loved this stock is compared to your average stock. This is exactly what we want to see in a stock, one that has shown in this case anyway that there is enough interest in it to allow it to still go up when just about every other important stock is going down.

We tend to get concerned when a stock has run up this far and has outperformed the broader market so much, and perhaps especially when all this has occurred in all-time high territory. this might concern some, but P&G has shown no signs of slowing down, and just continues to break new ground.

The 16% gain that P&G has booked in 2019 so far doesn’t really stand out that much, as this is very similar to how much the market has gained this year, but this stock has danced to its own tune more than most stocks do, and has just kept dancing regardless lately. We may worry though that it has now become “overpriced,” even though the concept of overpriced really depends on what the market wants to pay for a stock, and nothing else actually.

The company just released another positive quarterly report though, and the fundamentals continue to look good, so its stock has a lot of things going for it. While these business results do influence stock prices, the market love itself that this stock is getting is what is most impressive about this stock right now.

In a move that may seem odd to some, P&G did give back about 3% after its recent upbeat earnings call, but this is likely just due to some people taking profits, and there has been plenty of profit to take for those who have been invested. A day later, on Wednesday, we’ve already started to see this inch up a bit, although we do still need to be aware of the potential for more profit taking over the next while if this materializes.

Analyst Says P&G is Poised to Go Even Higher

Barclays analyst Lauren Lieberman has seen her outlook improve on P&G as a result of this latest earnings call, raising her target price from $94 to $112 a share. Given that it has already well passed $94, that number did probably need to be updated, but this forecast does project a further price gain of about 8%.

Lieberman sees P&G’s organic earnings growth as both substantial and broad based geographically, and this is indeed a company whose reach is very broad globally. This earnings growth is seen as allowing the company to expand even further, which is the sort of thing stock markets really like.

She remarks that “the combination of operating leverage from a strong top line and a steady stream of cost savings should enable P&G to have the flexibility to both reinvest and continue to step up reinvestment levels in fiscal 2020.”

When you have a stock that is so well-liked by investors getting even better, that does portend quite well. The fact that P&G is up as much as it is should not concern us too much provided that the outlook on the stock remains as positive as it currently is. This has been a simply beautiful play over the last year with no real end in sight.