Is Procter & Gamble Stock Appropriately Priced At $160?

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PG: Procter & Gamble logo
PG
Procter & Gamble

Procter & Gamble (NYSE: PG) recently reported its Q3’24 results (P&G’s fiscal ends in June), with revenues missing but earnings exceeding street estimates. The company reported revenue of $20.2 billion and adjusted earnings of $1.52 per share, compared to the consensus estimates of $20.4 billion and $1.41, respectively. Overall, pricing gains of 3% were partly offset by a 2% impact of foreign currency losses, while the total volume remained flat y-o-y. In this note, we discuss Procter & Gamble’s stock performance, key takeaways from its recent results, and valuation.

Firstly, looking at its stock performance, PG stock has witnessed gains of 15% from levels of $140 in early January 2021 to around $160 now, vs. an increase of about 30% for the S&P 500 over this roughly three-year period. However, the increase in PG stock has been far from consistent. Returns for the stock were 18% in 2021, -7% in 2022, and -3% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — 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.

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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 is fully valued. We estimate Procter & Gamble’s Valuation to be $166 per share, close to its current levels of $160. Our forecast is based on a 25x P/E multiple for PG and expected earnings of $6.52 on a per share and adjusted basis for the full fiscal 2024. The 25x figure aligns with the stock’s average P/E multiple over the last five years.

Looking at the latest quarter, Procter & Gamble’s revenue of $20.2 billion in Q3’24 was up 1% from $20.1 billion in the prior year quarter, primarily driven by pricing gains. While Baby, Feminine & Family Care segment sales declined 2%, all other segments saw their sales rise in low single-digits. The adjusted operating margin expanded by 90 bps y-o-y to 22.1% in Q3’24. Higher revenue and margin expansion resulted in earnings growth of 11% to $1.52 on a per share and adjusted basis. Looking forward, P&G continues to expect sales growth of 2% to 4% in fiscal 2024. It raised its core earnings outlook to grow 10% to 11% from its prior guidance of 8% to 9% growth.

While PG stock looks like it is appropriately priced, 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 Apr 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 PG Return -1% 10% 91%
 S&P 500 Return -5% 5% 124%
 Trefis Reinforced Value Portfolio -7% -1% 606%

[1] Returns as of 4/23/2024
[2] Cumulative total returns since the end of 2016

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