On Wednesday, D.A. Davidson began coverage on Procter & Gamble (NYSE:PG) shares with a Neutral rating and set a price target of $159. The firm has also added the stock to its Best-of-Breed Bison list, acknowledging the company's quality and strategic improvements that have led to higher growth rates since 2017. Despite these positive developments, the firm anticipates potential pressure on the company's valuation due to a projected slowdown in organic sales growth.
Procter & Gamble, known for its broad portfolio of consumer goods, has seen organic sales growth slow from +7% in the fiscal years 2022-2023 to an expected +4% in 2024, with a further possible deceleration to +3% in the fiscal year 2025 estimate. This forecast comes in the wake of the company missing the consensus operating profit for the fourth fiscal quarter of 2024, where organic sales growth was only 2%.
The company has provided guidance suggesting a "hockey stick" pattern of growth in the fiscal year 2025. D.A. Davidson's price target of $159 is based on a multiple of 22 times the calendar year 2025 estimated earnings per share (EPS) of $7.21. This valuation is slightly above the 21 times earnings, which is the midpoint of Procter & Gamble's 10-year valuation range.
The initiation of coverage and the setting of the price target at D.A. Davidson reflect a cautious but acknowledging stance towards Procter & Gamble's market position and future performance expectations. The firm's analysis indicates a recognition of the company's solid performance in recent years but also a tempered expectation for growth looking forward.
In other recent news, Unilever (LON:ULVR) has committed to a substantial investment exceeding €150 million ($165 million) to revamp its European homecare supply chain. This initiative, which began in early 2023, aims to address previous underperformance and connect with post-pandemic consumers. The overhaul involves the construction of new factories, warehouses, and the installation of new production lines in existing facilities, with the project set to continue until 2026. Unilever's global homecare business reported a 3.3% rise in underlying sales for the first half of the year, with the European sector experiencing nearly 13% growth during the same period.
Turning to Procter & Gamble, recent analyst notes indicate mixed views. Goldman Sachs reiterated a Neutral rating, anticipating a neutral to negative risk-reward situation for the upcoming fiscal quarter one earnings. On the other hand, HSBC increased the price target on Procter & Gamble shares, maintaining a Buy rating, citing the company's operational strength and market position.
However, Barclays downgraded the stock from Overweight to Equalweight, expressing concerns over slower growth in certain markets. Lastly, Piper Sandler initiated coverage on Procter & Gamble shares with a neutral rating, noting that while current estimates seem reasonable, they are not expected to be exceeded.
InvestingPro Insights
Procter & Gamble's financial metrics and market position offer additional context to D.A. Davidson's analysis. According to InvestingPro data, the company boasts a market capitalization of $397.78 billion, underlining its significant presence in the Household Products industry. The company's P/E ratio of 27.35 and P/E ratio (Adjusted) of 24.58 for the last twelve months as of Q4 2024 align with D.A. Davidson's valuation considerations.
InvestingPro Tips highlight P&G's strong dividend history, having raised its dividend for 40 consecutive years and maintained payments for 54 years. This consistency in shareholder returns is particularly noteworthy given the company's revenue of $84.04 billion in the last twelve months as of Q4 2024, with a modest revenue growth of 2.48% over the same period.
While D.A. Davidson expresses caution about future growth, InvestingPro Tips indicate that P&G has a perfect Piotroski Score of 9, suggesting strong financial health. However, it's also noted that the company is trading at a high P/E ratio relative to near-term earnings growth, which aligns with the firm's concerns about potential pressure on valuation.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Procter & Gamble, providing a deeper dive into the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.