Procter & Gamble value 'not too demanding' - Wolfe Research

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By Sam Boughedda

Wolfe Research initiated Procter & Gamble (NYSE:PG) at Outperform with a $156 target price in a note Tuesday.

Analysts told investors the firm expects demand elasticities to beat expectations as brand investments and innovation drive wallet share to the company, while they also believe P&G's valuation is "not too demanding as investors flee to safety."

"We think Procter's efforts to streamline their portfolio while reinvesting in marketing/innovation should lead to better than anticipated demand elasticities. We are a bit worried about the premium skew of many brands (Tide / Gillette - see proprietary pricing study) but consumers' balance sheets are still healthy and wage growth has been strong, which should support demand for their daily use products," wrote the analysts.

Meanwhile, the firm is more optimistic about Procter & Gamble's Gillette, as "start-ups like Dollar Shave Club and Harry's need to focus on profitability, providing room for P&G to grab share."

The analysts stated that defensiveness is improved by the company's U.S. exposure.

"Procter over-indexes to the United States (~45% of sales) versus competitors (Colgate, Unilever (NYSE:UL), and Henkel average ~24% of sales). We think this insulates Procter from a deteriorating macro environment especially in developing countries," they continued. "P&G's In-Stock Rates Have Runway for Improvement. Supply chain is a competitive advantage for Procter, but we think there is still room to improve fill rates (tracking in the high 80% vs. CL in the high-90%). As this improves over the next few quarters we think this should drive incremental share to Procter."