Procter & Gamble stock (NYSE: PG) currently trades at $157 per share, roughly 17% above its level in March 2021, and it still has room for growth. P&G saw its stock trading at around $144 in late June 2022, just before the Fed started increasing rates, and is now 9% above that level, while the broader S&P 500 has gained about 18% during this period. The slight rise in PG stock over the last twelve months or so has been driven by pricing gains for P&G and a steady decline in the inflation rate in response to the Fed’s aggressive rate hike plan – although investors still have concerns about a potential recession.
PG stock is already trading close to its pre-inflation shock high of $164 and still has some room for growth. We estimate Procter & Gamble’s valuation to be around $172 per share, implying roughly 10% gains. This is because the company has seen steady sales growth over the recent quarters and has maintained its operating margin of 22% in recent years, despite rising costs. The company posted upbeat Q4 fiscal 2023 results (fiscal ends in June) and a robust view for fiscal 2024, primarily due to pricing growth.
Our detailed analysis of Procter & Gamble’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.
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2022 Inflation Shock
Timeline of Inflation Shock So Far:
- 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
- Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continued to hurt supply.
- April 2021: Inflation rates cross 4% and increase rapidly.
- Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
- June 2022: Inflation levels peak at 9% – the highest level in 40 years. S&P 500 index declines more than 20% from peak levels.
- July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
- Since October 2022: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses.
In contrast, here’s how PG stock and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate pre-crisis peak in S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
- 3/1/2009: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
P&G and S&P 500 Performance During 2007-08 Crisis
PG stock declined from $71 in September 2007 to around $48 in March 2009 (as the markets bottomed out), implying that it lost about 32% of its pre-crisis value. It recovered post the 2008 crisis to around $61 in early 2010, rising 25% from its lows. In contrast, the S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.
P&G’s Fundamentals Over Recent Years
Procter & Gamble’s revenue rose from $71 billion in 2020 to $82 billion in 2023, driven by better price realization. P&G’s largest segment is Fabric & Home Care, contributing over one-third of the company’s revenues. P&G’s operating margin has been stable at around 22% in recent years. Our Procter & Gamble Operating Income Comparison dashboard has more details. The company’s reported earnings increased from $5.13 in 2019 to $6.07 in 2023.
Does P&G Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?
P&G’s total debt is around $35 billion, aligning with levels seen in 2020. However, its total cash has decreased from $16 billion to $8 billion over this period. The company garnered $17 billion in cash flows from operations in 2023. Given its cash position, P&G is in a comfortable position to meet its near-term obligations.
The Fed’s efforts to tame runaway inflation rates are helping market sentiment, and we believe P&G (PG) stock has the potential for more gains once fears of a potential recession are allayed. We believe investors can use any dip in P&G for gains in the long run. P&G should continue to benefit from a better pricing environment, likely passing on increased input and operating costs to the customers.
PG stock looks like it has some room for growth in the near to mid-term. But what if you’re looking for a high-performance portfolio with a low downside instead? The Trefis Reinforced Value portfolio has beaten the market consistently while limiting losses during periods of sharp market declines.
|S&P 500 Return||-3%||16%||99%|
|Trefis Multi-Strategy Portfolio||-6%||21%||289%|
 Month-to-date and year-to-date as of 8/14/2023
 Cumulative total returns since the end of 2016