Procter & Gamble (NYSE:PG) is attractive to institutions in the inflationary market

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Key points to remember:

  • P&G achieved results in line with expectations
  • Management fearless of recession but unsure of inflationary pressures
  • Ray Dalio buys the stock, which appears to be cheaper than its peers in the category

It’s no secret that consumer staples fare better than average during market downturns, especially when inflation comes into the mix. Currently, this sector is still down over the year (-5.2%) but is doing much better than the market as a whole.

As the earnings season reaches its peak, we’ll take a look at the latest results from The Procter & Gamble Company (NYSE:PG)a company that trades at a valuation below the industry average.

See our latest analysis for Procter & Gamble

Procter & Gamble Results

  • EPS: $6.00 (compared to $5.69 for FY2021).
  • Revenue: $80.2 billion (up 5.3% from FY2021).
  • Net revenue: $14.7 billion (up 5.0% from fiscal 2021).
  • Profit margin: 18% (in line with the 2021 financial year).

Over the next year, revenue is expected to grow 2.1%, compared to a growth forecast of 2.7% for the industry in the United States. Over the past 3 years, on average, earnings per share have increased by 39% per year, but the company’s share price has only increased by 6% per year, which means that it is significantly lagging earnings growth.

The company posted profits broadly in line with expectations, although management noted that rising costs had caused gross margins to shrink. A loss attributed to raw material costs is approx. 450 basis points while transport costs lost another 80 points.

CEO Jon Moeller noted that persistent inflation is worrying and they are unsure of its peakBut he swept away the recession based on insight within their category.

Ray Dalio ups the ante

Ray Dalio’s Bridgewater Associates strengthened its positions in Consumer Staples, notably in Procter & Gamble – now their largest holding, representing 4.4% of the total portfolio. According to the latest 13F file, the total increase is 31%. Institutional investors seem to be trying to cushion the shock of inflation by turning to a more resilient sector.

Let’s take a look at the ownership structure to learn more about Procter & Gamble.

NYSE: PG Ownership Breakdown as of July 30, 2022

What does institutional ownership tell us about Procter & Gamble?

Institutional investors compare their returns to the returns of a commonly tracked index. They therefore generally consider buying larger companies included in the relevant benchmark.

Procter & Gamble already has institutions on the stock register. Indeed, they hold a good stake in the company. This implies that analysts working for these institutions have reviewed the stock and like it. But like everyone else, they can be wrong. When multiple institutions hold a stock, there is always a risk that they are in a “crowded trade”. When such a transaction goes wrong, multiple parties may compete to quickly sell shares. One such example is Netflix earlier this year when several institutions caused a rather severe sell-off.

earnings-and-revenue-growth
NYSE: PG Earnings and Revenue Growth July 30, 2022

Institutional investors own more than 50% of the company, so together they can probably heavily influence board decisions. Hedge funds don’t have a lot of shares in Procter & Gamble. Looking at our data, we can see that the largest shareholder is The Vanguard Group, Inc., with 9.1% of the shares outstanding. With 6.5% and 4.4% of the shares outstanding, BlackRock, Inc. and State Street Global Advisors, Inc. are the second and third largest shareholders.

A closer look at our ownership data shows that the top 25 shareholders collectively own less than half of the ledger, suggesting a large group of small shareholders where no single shareholder has a majority.

While studying the institutional ownership of a company can add value to your research, it is also recommended that you research analyst recommendations to better understand a stock’s expected performance. There are a reasonable number of analysts covering the stock, so it can be useful to know their overall view on the future.

Insider ownership of Procter & Gamble

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Management is ultimately responsible to the board of directors. However, it is not uncommon for managers to be members of the management board, especially if they are founders or CEOs.

Our data suggests that insiders own less than 1% of The Procter & Gamble Company in their own name. As this is a large company, we expect insiders to own only a small percentage. But it’s worth noting that they own $219 million worth of stock. In this situation, it may be more interesting to see whether these insiders have been buying or selling.

General public property

With a 35% stake, the general public, mostly individual investors, has some influence over Procter & Gamble. This size of ownership, although considerable, may not be sufficient to change company policy if the decision is not in line with other major shareholders.

Factors to keep in mind

Procter & Gamble is seeing increased interest from institutional investors, but we should note that SEC filings have a lagging factor. However, PG is trading at 22.6x earnings, well below the market average of 31x, making it an attractive prospect for investors who need exposure to this market segment, especially given of its stable dividend yield. Yet, we should note that these valuations are still above long-term averages, and the investment that seemingly creates the best return will be in an above-average company at a below-average price.

It is always worth considering the different groups that own shares in a company. But to better understand Procter & Gamble, we need to consider many other factors. Take risks; for example – Procter & Gamble has 2 warning signs we think you should know.

But finally, it’s the future, not the past, which will determine the performance of the owners of this company. Therefore, we think it’s advisable to take a look at this free report showing whether analysts are predicting a brighter future.

NB: The figures in this article are calculated using trailing twelve month data, which refers to the 12 month period ending on the last day of the month in which the financial statements are dated. This may not be consistent with the annual report figures for the full year.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position at any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials.

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