Procter & Gamble’s [PG] share price has bounced back from March lows, helped by strong demand for cleaning products during the coronavirus pandemic. The stock made a sparkling recovery, rising 26% from $114.51 on 26 June to $144.39 on 16 October. As the consumer goods giant prepares to release its first-quarter results on 20 October, should investors expect another tailwind for Procter & Gamble’s share price?
Procter & Gamble’s share price began the year at $124.50 before steadily slipping to $96.44 on 23 March as coronavirus fears hit the market.
However, the company was well-positioned to benefit from the increased demand in antibacterial products such as detergents and soaps during the crisis, which helped the stock recover to $124.31 on 14 July.
Procter & Gamble’s share price was boosted up by a further 2.4% on 30 July, following its better than expected fourth-quarter results. Will the same happen when it reports its first-quarter earnings later today?
Is Procter & Gamble headed for a Q1 earnings beat?
During its Q4 results, Procter & Gamble recorded a 4% net sales hike to $17.7bn and earnings of $1.16 per share during the quarter, beating analysts’ expectations of $16.97bn and $1.01, based on Refinitiv data. The group cited a rise in demand for its Mr Clean and Tide laundry products, particularly in North America and China.
However, there was a 5% net sales drop in personal grooming products as remote workers took a more relaxed attitude to their personal appearance in their kitchens and spare bedrooms.
For the 2020 fiscal year, net sales rose 5% to $71bn and core earnings per share were up 13% to $5.12.
“We are … maximizing availability of P&G products, which play an essential role in meeting the daily health, hygiene and cleaning needs of consumers around the world, and helping society meet the challenges of the COVID crisis. We expect to grow through this crisis and come out even stronger on the other side,” David Taylor, CEO of Procter & Gamble, said in a statement.
“We are … maximizing availability of P&G products, which play an essential role in meeting the daily health, hygiene and cleaning needs of consumers around the world, and helping society meet the challenges of the COVID crisis. We expect to grow through this crisis and come out even stronger on the other side” - David Taylor, CEO of Procter & Gamble
The group expects the strong growth to continue in fiscal year 2021 but at a slower rate. It forecasted sales to grow between 2% and 4% for the year.
Looking ahead to its first quarter, Morgan Stanley analysts expects 5% organic sales growth compared with a 4.3% consensus, according to Seeking Alpha.
Analysts at Zacks Equity Research, meanwhile, estimate it will post earnings of $1.43 per share, which would mark a 4.4% increase on the same period last year. The research publication predicts that revenues will reach $18.29bn in the first quarter, marking a 2.8% year-over-year rise.
Procter & Gamble's estimated Q1 revenue - a 2.8% YoY rise
Zacks pointed to the increased relevance of the company’s products and expects that the increased focus on home life to be a tailwind for Procter & Gamble with productivity and cost-saving plans additionally boosting margins.
The company will likely continue to benefit further from its decision in 2015 to shed hundreds of brands and concentrate on its most profitable 65 product lines.
Procter & Gamble has also tapped into the growth of e-commerce through its acquisition of subscription-based female shaving brand Billie. The tie-up will help grow the groups direct to consumer market through its dedicated brand incubator P&G Ventures.
Analysts bullish ahead of Q1 earnings
The consensus among 23 analysts polled by MarketScreener is that the stock will outperform. They provided an average target price of $144.34. Morgan Stanley analysts are a part of that consensus, with an overweight rating and a $158 target price.
“We rate PG overweight, with continued strength in PG market share gains post recent reinvestment and organisational changes, expected gross margin upside and compelling valuation,” Dara Mohsenian, analyst at Morgan Stanley, stated.
“We rate PG overweight, with continued strength in PG market share gains post recent reinvestment and organisational changes, expected gross margin upside and compelling valuation” - Dara Mohsenian, analyst at Morgan Stanley
Although some of Procter & Gamble’s product lines are seeing falling demand, the increased sales across essentials remains elevated.
“Diversification in the company’s portfolio of products helps to insulate it from the coronavirus’s negative effects,” Parkev Tatevosian wrote in The Motley Fool. “If [Procter & Gamble] issues better than expected earnings and raises its fiscal 2021 guidance, look for shares to pop.”