Procter & Gamble Earnings Preview: Fiscal Fourth Quarter 2009

Procter & Gamble [[PG]] is scheduled to report their fiscal fourth quarter 2009 results before the market opens on Wednesday, August 5. Based on our analysis, we at EarningsPreviews.com are expecting P&G to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $19.45 billion and EPS of $.81. This would represent a 9% decline in revenues from last year’s $21.27 billion in the same period. The current analyst consensus estimates calls for revenues of $19.38 billion and EPS of $.79. On April 30, the company narrowed their implied fiscal fourth quarter guidance to $.75 – $.80 EPS.

 

We are looking for Procter & Gamble to continue to trend among Dow stocks of delivering better than expected results this quarter. While P&G faces some tough macroeconomic headwinds, we expect that they have been conservative with their earnings guidance. However, despite operating in the traditionally strong consumer goods segment, P&G is faced with the challenge of losing market share in this recessionary environment. Their product lines consist primarily of premium products that are losing share as consumers move to cheaper private label products.

 

While the company has managed to grow earnings over 16% in fiscal year 2009, getting any growth at all will be challenging over the next 12 months. Wall Street is expecting P&G earnings to drop 11% in fiscal 2010. While the company continues to generate lots of cash and offers investors a nice 3.2% dividend yield, the company doesn’t seem to have a strong growth catalyst.

 

Share Performance

Since the beginning of the year, Procter & Gamble’s shares have lost over 9%. In 2008, PG shares fell almost 16%, but outperformed the 34% decline in the Dow Jones industrial average.

 

Valuation

Shares are now trading at 15x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. With P&G’s premium valuation and lack of near-term growth opportunities, we would expect the stock to underperform the overall market over the next few quarters.

 

Recommendation: Sell with a $50 price target.

 

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