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Nicholas Kitonyi
Nicholas Kitonyi
Articles (404)  | Author's Website |

Should You Bet on Procter & Gamble's Pullback?

The stock has fallen 1.44%

January 20, 2021 | About:

Shares of Procter & Gamble Co. (NYSE:PG) are down more than 6% since Jan. 6. The household and personal products manufacturer reported fiscal second-quarter 2021 earnings results that surpassed expectations before the opening bell on Wednesday.

The company's stock failed to move in tandem with the positive quarterly performance, instead edging 1.44% lower. Procter & Gamble has gained nearly 35% in market value since bottoming on March 23. However, it is now up just over 4% over the last 12 months.

The company is now valued at about 25.18 in regard to its price-earnings ratio, which is considerably higher than the Peter Lynch fair value of 15. Nonetheless, given its 12-month gain of just over 4%, there could be room left to run going into 2021.

Highlights from the recent quarterly results

Procter & Gamble's earnings per share grew by 15.49% to $1.64, which beat the consensus analyst expectation of $1.51. The company also increased its full-year 2021 core earnings per share growth guidance from 5% to 8% to 8% to 10%.

Revenue for the quarter rose 8.25% to $19.745 billion, again outperforming the consensus Street estimate of $19.27 billion.

Cash and cash equivalents at the end of the period came in at $11.9 billion, up from $6.2 billion reported as at the end of December 2019. Chairman, President, and CEO David Taylor said that Procter & Gamble is focusing on executing strategies of superiority, productivity and constructive disruption, which played a key role in the strong quarterly performance.

"These strategies enabled us to build strong business momentum before the COVID crisis, accelerated our progress in the calendar year 2020, and remain the right strategies to deliver balanced growth and value creation over the long term," he said.

Procter & Gamble operates in the consumer defensive industry, which means that even at the height of the pandemic, the company remained in a strong position to deliver improved top and bottom-line performances.

Valuation

From a valuation perspective, shares of Procter & Gamble trade at a trailing 12-month price-earnings ratio of 25.18. This is relatively higher than Unilever PLC's (NYSE:UL) price-earnings ratio of 21.83. Another industry peer, Kimberly-Clark Corp. (NYSE:KMB) trades at an equivalent of 19.14.

However, when we factor in expected earnings growth for the next five years, Procter & Gamble's PEG ratio of 2.92 is relatively in line with Kimberly-Clark's equivalent of 2.89. It is also significantly better than its global rival Unilever's 3.15.

In summary, shares of Procter & Gamble failed to climb on a positive earnings report. The company's stock appears to be overvalued based on the Peter Lynch value. However, when you compare it to close peers, it appears to be fairly valued.

Given the quality of the stock, this could be a good company to look at in 2021 for those targeting stable long-term investments.

Disclosure: No positions in the stocks mentioned.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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