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Procter & Gamble Hits 52-Week High: What's Behind the Rally?

Zacks Equity Research

The Procter & Gamble Company PG, also known as P&G, touched a 52-week high of $100.52, before closing the session a tad lower at $100.05 on Mar 12. Notably, the company is gaining from a solid focus on product improvement, packaging and marketing initiatives, and productivity and cost-savings plan.

Backed by these factors, Procter & Gamble delivered a sturdy second-quarter fiscal 2019 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Also, earnings improved year over year. This propelled management to raise the upper end of its organic sales guidance for fiscal 2019. Markedly, the stock has gained approximately 6% since the announcement of its quarterly results. (Read: Procter & Gamble Rises on Q2 Earnings Beat, Ups View)

In the past six months, shares of this Cincinnati, OH-based company have rallied roughly 20%, outperforming the industry’s 8.1% growth.

All said, let’s take a closer look at the aspects driving this Zacks Rank #2 (Buy) stock’s performance.

Factors Narrating P&G’s Growth Story

Procter & Gamble has been focusing on improving its product portfolio through buyouts. In July 2018, the company completed the acquisition of the beauty brand — First Aid Beauty — for $250 million. It also acquired the consumer health business of Germany-based Merck KGaA for $4 billion, and Walker & Company Brands, both in December 2018. While First Aid Beauty should help bolster its position in the beauty space, the addition of Merck KGaA’s consumer health business will expand P&G’s OTC geographic footprint.

In February this year, the company acquired a private company — This is L. — which produces period products with natural ingredients. We believe this buyout to be an important step by Procter & Gamble toward expanding its naturals product range, which is a key focus area for most day-to-day consumer product companies at present.

Apart from these, Procter & Gamble remains focused on productivity and cost-saving plans to boost margins, thereby raising the profit level. Excluding currency headwinds, core operating profit margin expanded 80 basis points including total productivity cost savings of 210 basis points in second-quarter fiscal 2019. The company’s continued investment in business alongside initiatives to offset macro-cost headwinds, and balance top- and bottom-line growth underscore its productivity efforts.

With cost savings and efficiency improvements across all facets of business, the company is nearing the mid-point of its second five-year (fiscal 2017-2021) cost savings target of $10 billion. The second five-year restructuring plan targets cutting costs in areas including supply chain and cost of goods sold, marketing and digitization and effectiveness of promotional spending.

Thanks to these growth drivers, management now expects organic sales for the fiscal year to increase 2-4%. Moreover, Procter & Gamble continues to anticipate core EPS growth of 3-8% in fiscal 2019. We believe that such efforts will consistently boost the company’s performance.

Other Key Picks

Unilever N.V. UN has a long-term earnings growth rate of 6.1% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. MED delivered average positive earnings surprise of 10.9% in the trailing four quarters. It has a long-term earnings growth rate of 20% and a Zacks Rank #1.

The Clorox Company CLX has a long-term earnings growth rate of 6.4% and a Zacks Rank #2.

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