Source: PaxForex Premium Analytics Portal, Fundamental Insight
Despite Procter & Gamble's stock performance this year, which may suggest a lack of growth, the long-term outlook for this consumer staples powerhouse remains positive. While the stock has experienced a slight decline compared to the 14% year-to-date surge in the S&P 500, it has actually performed better than its peer Kimberly-Clark (KMB), which saw a modest 1% increase during the same period.
Currently, P&G is facing a temporary slump in demand as it implements price increases while consumer spending remains under pressure. However, several factors indicate promising returns for P&G shareholders in the future.
First off, P&G demonstrates strong pricing power, which is a significant indicator of a robust business. In the most recent quarter, its gross profit margin increased by 2 percentage points, outperforming many other consumer staples companies struggling to pass on rising costs to consumers. P&G was able to raise prices at a faster pace than Kimberly-Clark during the same period, while also experiencing a more modest decline in organic sales volume. As a result, P&G achieved a 7% increase in overall sales, surpassing Kimberly-Clark's 5% growth.
In the company's most recent quarterly earnings press release, CEO Jon Moeller acknowledged the challenging cost and operating environment but expressed satisfaction with the strong results delivered by P&G.
Despite the current demand challenges and stock performance, the combination of P&G's pricing power and its ability to navigate difficult market conditions suggests a positive outlook for the company and potential rewards for its shareholders in the long run.
Secondly, P&G's efficient operations are reflected in its high profit margins, particularly when compared to its peer Kimberly-Clark. Currently, P&G maintains an operating profit margin above 20% of sales, while Kimberly-Clark's margin has fallen below 14%. This is positive news for shareholders, as it not only indicates efficient operations but also impacts P&G's cash return program. The company anticipates paying approximately $9 billion in dividends this year and allocating up to $8 billion for stock buybacks. Furthermore, P&G's margins have a good chance of increasing in the coming quarters as inflation moderates.
Another upside to P&G's declining stock price in 2023 is that it has become more attractively valued, setting the stage for potential strong returns. Currently, P&G's shares are valued at around 4.5 times annual sales, down from levels closer to 5 in recent years. While this still represents a significant premium compared to Kimberly-Clark, which is trading at approximately 2.3 times sales, P&G's more favorable valuation offers potential upside.
Additionally, P&G's dividend yield has slightly increased due to the combination of a relatively flat stock price and an enhanced payout. The current 2.5% yield serves as an attractive bonus for investors, along with the potential for further cash returns through stock buybacks in the coming years.
Taking these factors into consideration, it is worth considering adding P&G to your portfolio, particularly when sentiment around the business is temporarily low. As a market leader in numerous product categories, with ongoing sales growth and profit expansion, P&G is well-positioned to deliver market-beating returns for patient investors over the long term.
As long as the price is above 147.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 151.97
- Take Profit 1: 154.00
- Take Profit 2: 158.00
Alternative scenario:
If the 147.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 147.00
- Take Profit 1: 144.00
- Take Profit 2: 141.00
