Procter & Gamble: A household name on the mend

This stalwart known for Pampers, Tide, Duracell and many more brands you use every day is ready for a big turnaround.

By MoneyShow.com Mar 14, 2013 5:08PM

By Charles Carlson, DRIP Investor


To say Procter & Gamble (PG) has been a lazy stock in recent years would be an understatement. Its shares were up less than 2% in 2012, and less than 4% in 2011. Flat earnings and revenues have not helped.


However, the company seems to be in the midst of a turnaround. Per-share profits have handily outperformed consensus estimates in the past two quarters, and earnings estimates for fiscal 2013, ending in June, have bumped up nicely in the last 30 days.


The stock is responding to the improved earnings outlook, recently moving to a fresh 52-week high.


Procter & Gamble still has plenty of work ahead. Its consumer markets continue to be quite competitive, and parts of the globe (the company gets around two-thirds of its revenue from overseas) still have fragile economies.


However, for investors who want a blue chip with an above-average yield, a stellar record of growing its dividend (56 consecutive years and counting), and reasonable upside potential, these shares should fit the bill.


Procter & Gamble’s product stable includes such popular brands as Pampers, Tide, Pantene, Bounty, Dawn, Charmin, Crest, Oral-B, Duracell, Olay, Gillette, Braun, Febreze and Vicks. Fabric care and home care (33% of sales) and beauty (24% of sales) represent the firm's two largest segments.


The company is coming off a solid quarter. Core earnings per share increased 12% to $1.22 per share, beating the consensus estimate by 11 cents. Organic sales grew 3%, with all business segments increasing organic sales by 2% or more versus the prior year. The company held or grew market share in businesses representing nearly 50% of sales in the quarter.


Procter & Gamble boosted its per-share earnings guidance for the fiscal year ending in June from $3.97 to $4.07, and bumped up its organic sales growth guidance to a range of 3% to 4%, from a previous range of 2% to 4%. Procter & Gamble also boosted its outlook for share repurchases from $5 to $6 billion, up from a prior range of $4 to $6 billion. The results sparked a nice rally in the shares.


Another catalyst for the stock has been the presence of activist investor William Ackman, who is providing yet another "motivating" force for P&G management. The company’s improved outlook should spark another dividend increase over the next three to six months. I would expect a bump of at least 7% in the payout. The stock’s current yield is nearly 3%.


Procter & Gamble is not a cheap stock. The shares trade at 19 times the fiscal 2013 consensus earnings estimate of $4.07 per share. Thus, the stock is vulnerable to selling pressures, should the rebound stall.


However, the combination of dividend yield and appreciation potential has been a strong lure for investors of late, and Procter & Gamble should find its stock in demand if it can continue to deliver on its turnaround.


Please note that the company offers a very user-friendly, direct-purchase plan in which any investor may buy the first share and every share of stock directly from the company.


More from MoneyShow.com:

One Day Does Not Make a Bear Market

Strategies for an All-Weather Market

4 Blue Chips That Thrashed the Market

Tags: PG
0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
284
284 rated 2
461
461 rated 3
671
671 rated 4
628
628 rated 5
618
618 rated 6
615
615 rated 7
495
495 rated 8
347
347 rated 9
115
115 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
DYNDYNEGY Inc10
TAT&T Inc9
VZVERIZON COMMUNICATIONS9
EXCEXELON CORPORATION8
AAPLAPPLE Inc10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.