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P&G's Edge Unwavering

We view the wide-moat firm as undervalued.

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 Procter & Gamble (PG) released fiscal fourth-quarter results and named a new CEO this week. Although the market appeared disappointed by the lackluster sales report, we believe the firm is taking prudent steps to position itself for profitable growth longer term. We view wide-moat P&G as an attractive, undervalued investment.

In fiscal 2015, sales ticked up 1% organically but 2% when excluding the brands that will be divested. Beauty remained a laggard, with segment sales off 1% versus last year. However, health care (up 4%) and baby, feminine, and family care (up 3%) were bright spots. We think the market share gains achieved in U.S. laundry, U.S. diapers, and adult incontinence signal the potential that can be realized across the firm's mix when innovation and marketing are on target, supporting P&G's brand intangible asset, although these investments take time to yield measurable gains. In addition, the firm's efforts to drive out excess costs are notable and ultimately should provide the fuel to reignite its brands. Excluding the impact of unfavorable foreign exchange, adjusted gross margins increased 80 basis points to nearly 50%, and adjusted operating margins rose 130 basis points to the high teens/low 20s.

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Erin Lash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.