Consumer staples giant The Procter & Gamble Company (PG) declared a quarterly dividend of $0.87 per share payable on August 16. With 65 years of consecutive dividend increases, PG is a dividend aristocrat. Its dividend pay-outs have grown at a 4.5% CAGR over the past five years and at a 5.7% rate over the past three years. While its four-year average dividend yield is 2.83%, its current dividend translates to a 2.47% yield.

Thanks to its resilient business model, PG’s revenue and EPS have grown at 4.1% and 13% CAGRs, respectively, over the past three years. Also, the stock has gained 7.4% over the past three months to close yesterday’s trading session at $140.85.

However, there has been a decrease in hedge fund interest in the stock recently. Also, because the COVID-19 pandemic-led surge in demand for consumer goods is gradually decreasing, PG’s pace of growth looks uncertain in the near term.

Here’s what we think could influence PG’s performance in the coming months:

Broad Portfolio of Products

With a presence in more than 180 countries, Cincinnati, Ohio-based PG operates through five segments—Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care—under various brands. Under its Beauty segment, Olay Body introduced three new Premium Body Care Collections in April 2021, and Secret introduced its first-ever clinical-level sweat and odor protection solution in March 2021—Secret DERMA+ Antiperspirant. Tide, a brand within  the company’s Fabric & Home Care segment, announced on June 22 that it had signed a Space Act Agreement with NASA to help develop laundry detergent solutions and technology development in space.

On July 21, PG’s Gillette Venus brand introduced a new, limited-edition, shave collection designed in collaboration with international lifestyle brand Rifle Paper Co. Also, the company’s Pampers brand under the Baby, Feminine & Family Care segment created Pampers Pure Protection Hybrid Diapers in May 2021—its first diapering system that is partly reusable and partly disposable.

Mixed Financials

PG’s top line increased 5.2% year-over-year to $18.11 billion for its fiscal third quarter, ended March 31, 2021, in-part driven by product price increases. . However, the company’s organic sales in the quarter increased 4% year-over-year versus an 8% year-over-year increase in the previous quarter (ended December 31, 2020). Its operating income decreased 29.6% sequentially to $3.79 billion, while its net income declined 16.4% sequentially to $3.25 billion. PG’s EPS came in at $1.26, down 23.2% sequentially.

Stretched Valuation

In terms of forward non-GAAP P/E, PG’s 24.94x is 20.5% higher than the 20.69x industry average. The stock’s 4.81x and 4.55x respective forward EV/S and P/S are higher than the 2.12x and 1.58x industry averages. Its 19.75x forward P/CF is 42.2% higher than the 13.89x industry average.

POWR Ratings Reflect Uncertainty

PG has an overall C rating, which equates to Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. PG has a C grade for Value, which is in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Sentiment. Of the 22 analysts that have rated PG, 11 rated it Hold.

PG has a C grade for Growth also. This is consistent with analysts’ expectations that its revenue will increase 3.7% year-over-year to $18.36 billion for the about-to-be-reported quarter ended June 30, 2021, but its EPS will decline 6% year-over-year to $1.09.

Of 73 stocks in the D-rated Consumer Goods industry, PG is ranked #20. Click here to see the additional POWR Ratings for PG (Momentum, Stability, and Quality).

Better than PG: Click here to access 16 top-rated stocks in the same industry.

Bottom Line

PG is expected to pay more than $8 billion in dividends this year. However, its sky-high valuation seems unjustified because its EPS is expected to decline in the about-to-be-reported quarter. PG is expected to release its fiscal fourth-quarter earnings results on July 30. So, we think it’s better to see its  financials and  management’s outlook before betting on the stock.

PG shares fell $140.85 (-100.00%) in premarket trading Wednesday. Year-to-date, PG has gained 2.86%, versus a 18.29% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...

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