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P&G’s Competitive Edge, Future Sales Growth Underappreciated

Focusing on its core business has slowed short-term growth for this wide-moat giant, but it sets the stage for profitable growth in the future, writes Morningstar’s Erin Lash.

We don’t expect to change our $90 fair value estimate for wide-moat

Management maintained its top-line guidance for the full year (June year-end)--calling for a low-single-digit increase in organic sales--but narrowed its EPS range to down 3%-6% from down 3%-8% (and anticipates a negative 9% hit from unfavorable foreign exchange). We continue to believe that with its leading brand mix and vast resources, P&G is a critical partner for retailers, which are reluctant to risk costly out-of-stocks with unproven suppliers, supporting the firm's wide moat. In that vein, P&G strikes us as an attractive investment, as the market's confidence in its competitive edge and ability to drive accelerating sales growth (to a mid-single-digit level over the next several years) has yet to materialize, and we’d recommend investors consider building a position in the name.

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About the Author

Erin Lash

Consumer Sector Director
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Erin Lash, CFA, is director of consumer sector equity research for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. In addition to leading the sector team, Lash covers packaged food and household and personal care companies.

Before joining Morningstar in 2006, she spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance.

Lash holds a bachelor’s degree in finance from Bradley University and a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. She also holds the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

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