Procter & Gamble (NYSE: PG) recently reported its Q1’24 results (P&G’s fiscal ends in June), with revenues and earnings beating the street estimates. However, we believe PG stock has little room for growth, as discussed below. The company reported revenue of $21.9 billion and adjusted earnings of $1.83 per share, higher than the consensus estimates of $21.6 billion and $1.70, respectively. In this note, we discuss Procter & Gamble’s stock performance, key takeaways from its recent results, and valuation.
PG stock has seen little change, moving slightly from levels of $140 in early January 2021 to around $150 now, vs. an increase of about 10% for the S&P 500 over this roughly three-year period. Overall, the performance of PG stock with respect to the index has been lackluster. Returns for the stock were 18% in 2021, -7% in 2022, and -2% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 9% in 2023 (YTD) – indicating that PG underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Consumer Staples sector, including WMT, COST, and KO, and even for the megacap stars GOOG, TSLA, and MSFT.
In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could PG face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump? From a valuation perspective, we believe PG stock has little room for growth. We estimate Procter & Gamble’s Valuation to be $163 per share, reflecting only a 9% upside from its current levels of $149. Our forecast is based on a 25x P/E multiple for PG and expected earnings of $6.43 on a per-share and adjusted basis for the full fiscal 2024. This compares with the last three-year average P/E multiple of 26x. The company expects its earnings to be in the range of $6.25 to $6.43.
Procter & Gamble’s revenue of $21.9 billion in Q1 ’24 was up 6% from $20.6 billion in the prior year quarter, led by 7% pricing gains, partly offset a 1% decline in volume. The operating margin expanded 240 bps to 26.4%. Higher revenue and margin expansion resulted in earnings growth of 17% to $1.83 on a per-share and adjusted basis.
PG stock is trading at 4.3x sales, aligning with its last five-year average of 4.3x, implying that it is appropriately priced. We believe investors will likely be better off waiting for a dip to enter PG for better gains in the long run. Challenging macroeconomic factors, higher costs, the impact of higher pricing on volume, and a potential recession are some risk factors that could cap Procter & Gamble’s growth in the near term.
While PG stock looks like it has little room for growth, it is helpful to see how Procter & Gamble’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
| Returns | Oct 2023 MTD [1] |
2023 YTD [1] |
2017-23 Total [2] |
| PG Return | 2% | -2% | 78% |
| S&P 500 Return | -4% | 7% | 84% |
| Trefis Reinforced Value Portfolio | -5% | 17% | 500% |
[1] Month-to-date and year-to-date as of 10/31/2023
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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