Is Procter & Gamble Stock Fully Valued At $150?

PG: Procter & Gamble logo
Procter & Gamble

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.

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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]
YTD [1]
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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