Should You Pick Procter & Gamble Stock At $155 After A Mixed Q2?

Procter & Gamble (NYSE: PG) reported its Q2’24 results (P&G’s fiscal ends in June) last week, with revenues falling below and earnings beating the street estimates. Despite its mixed performance, we believe PG stock is appropriately priced, as discussed below. The company reported revenue of $21.4 billion and adjusted earnings of $1.84 per share, compared to the consensus estimates of $21.5 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 witnessed gains of 10% from levels of $140 in early January 2021 to around $155 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 mega-cap 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.

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 $163 per share, close to its current levels of $156. Our forecast is based on a 25x P/E multiple for PG and expected earnings of $6.48 on a per-share and adjusted basis for the full fiscal 2024. This aligns with the last four-year average P/E multiple of 25x. The company expects its earnings to be in the range of $6.37 to $6.43.

Procter & Gamble’s revenue of $21.4 billion in Q2 ’24 was up 3% from $20.8 billion in the prior year quarter, led by 4% pricing gains, partly offset by a 1% forex related headwind and volume remaining flat. The adjusted operating margin expanded 400 bps to 27%. Higher revenue and margin expansion resulted in earnings growth of 16% to $1.84 on a per-share and adjusted basis.

PG stock is trading at 4.4x sales, close to its last five-year average of 4.5x, implying that it is appropriately priced based on the historical valuation multiple. We believe investors will likely be better off waiting for a dip to enter PG for better gains in the long run. Furthermore, challenging macroeconomic factors, tepid volume growth, 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.

[1] Returns as of 1/30/2024
[2] Cumulative total returns since the end of 2016

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