Procter & Gamble Co. made a commitment to focus on “product superiority” four years ago and now the consumer products giant is reaping the reward of customer loyalty as a result, according to Truist Securities, which upgraded P&G to buy from hold in a Tuesday note.
Truist raised its price target to $175 from $165.
Analysts say that nearly every consumer staples company saw gains during the COVID pandemic, making it difficult to determine which were sustainable and which were temporary.
But as we head into a “new normal,” analysts say investors will be able to see P&G’s
momentum and the stock will turn upwards.
P&G shares have slumped 7.1% for the year to date, and shares are up 16.8% over the past year.
The Dow Jones Industrial Average
is up 5.6% for last 12 months.
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“Roughly four years ago, the company set a goal to have 75% of its portfolio deemed technically superior to the competitive set. The thought being consumers would readily trade up to superior, higher-priced products if they could easily see the enhanced benefits of the product,” Truist wrote.
“We believe this strategy was a key reason why the company started to outperform pre-pandemic in terms of market share and top line growth. We also believe it created a stickier base of consumers, who are less willing to give up superior products to save a few cents.”
P&G brands include Tide laundry detergent, Dawn dishwashing soap, Pampers, Bounty paper towel and Always feminine hygiene products.
Analysts note that growth of branded and premium products outpaced private label during the pandemic, which is also a positive for P&G.
“We believe the combination of a technically enhanced portfolio, a more brand-centric consumer base and a strong economy in PG’s major markets will enable the company to pass off the pricing needed to offset higher costs with less demand elasticity than in prior cycles,” the note said.