Procter & Gamble's upcoming 1Q earnings should showcase strong fundamentals: analysts

Analysts are cautious about Procter & Gamble (NYSE:PG)'s upcoming fiscal 1Q earnings, but UBS is anticipating that its strong fundamental performance will shine throughout this earnings season and present an attractive risk/reward profile in the mid-term.

Amid a slightly bearish sentiment in recent months, P&G shares have dipped by approximately 7%, although they have outperformed large-cap multinational peers. Despite the stock's performance, analysts believe the company's strong fundamentals could drive a positive market reaction.

The consumer goods giant is set to unveil its first-quarter earnings for the fiscal year 2024 on October 18.

“From a fundamental perspective, we believe investors are constructive on P&G, particularly as volume growth/share performance have become integral to any investment case across the group and are metrics where the company is outperforming versus the group,” UBS analysts wrote.

“However, as we have seen from the group thus far, fundamentals have not necessarily been indicative of stock performance on the day and with valuation for P&G still trending above historical averages (both on an absolute and relative basis), some investors have questioned whether a solid print will be enough.”

Analysts at UBS anticipate an earnings per share (EPS) of $1.72, in line with the market consensus, as P&G sets the tone for the Household and Personal Care (HPC) sector this earnings season.

“At this stage, we think concerns on the near-term set-up are fair given the broader Staples backdrop and expectations that remain elevated, but we continue to believe fundamental performance for P&G will stand out across the group this earnings season and view the risk/reward as attractive, particularly looking out over the next six to 12 months,” UBS wrote.

Key metrics like volume growth and share performance, which have become pivotal factors for investment decisions within the industry, will be in focus. Analysts noted that P&G has shown outperformance in these areas compared to its sector peers, reflecting its fundamental strength.

However, UBS analysts emphasize that while P&G's fundamentals are robust, stock performance might not necessarily correlate with this, especially given the prevailing market conditions and the company's valuation above historical averages.

Anticipating the earnings report, analysts are watching for potential changes in P&G's fiscal year 2024 guidance. Factors such as fluctuating foreign exchange rates, increasing oil costs, and an unpredictable China recovery are essential variables influencing guidance adjustments.

Despite these challenges, UBS maintains the base case of P&G maintaining its EPS guidance range of $6.25 to $6.43. Organic sales growth is predicted to be around 5% for the year, aligning with consensus estimates, and EPS at $6.36, slightly below consensus.

A critical aspect of the earnings assessment is P&G's volume performance. Recent data shows positive volume growth in the US, indicating a potentially positive quarter for P&G in terms of volume performance compared to its industry counterparts.

UBS has a 'Buy' rating for P&G and a price target of $168.

Shares of P&G were trading 1.5% higher on Monday at $146.86.