Upside In Procter & Gamble Shares Is Limited; Here's Why In 3 Points

Stifel has downgraded Procter & Gamble Co PG to Hold from Buy, as it sees limited upside in shares due to Forex headwinds, moderate anticipated input cost inflation and continued heightened geopolitical uncertainty.

What Those 3 Mean

As such, the brokerage also cut its target price by $2 to $86, saying that P&G shares are expected to remain range-bound for the next six to 12 months.

Stifel still projects 2 percent organic sales growth in fiscal 2017, with modest improvement in the two-year CAGR through the year, driven by improving market share trends on reinvestment and innovation.

However, the brokerage believes recent geopolitical volatility could have a modestly negative impact on second quarter sales growth.

“Overall, while the company continues to anticipate exiting F2017 with organic sales growth near market growth, currently approximately 3.0 percent, we believe it is more likely to begin in F2018 as P&G benefits from anticipated investment and innovation,” analyst Mark Astrachan wrote in a note.

Astrachan sees fiscal 2017 and 2018 EPS of $3.80 (consensus $3.86) and $4.01 (consensus $4.17), respectively.

Valuation

On the valuation front, Procter & Gamble shares currently trade at a -0.3 percent discount and a 2 percent premium to the 10-year average NTM P/E relative to the S&P 500 and the S&P 500 Consumer Staples Index, respectively.

“We believe a modest absolute premium is warranted given P&G’s stability of free cash flow generation and dividend yield, but the current premium limits outperformance,” Astrachan added.

Shares of Procter & Gamble closed Tuesday’s trading at $84.57.