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Strategies & Market Trends : Steve's Channelling Thread -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (3803)	7/29/2000 3:27:30 PM
From: Crimson Ghost	Read Replies (1) \| Respond to of 30051

More on PG: Friday July 28, 12:33 pm Eastern Time Individual Investor Consumer: Buy Procter & Gamble Now? By: Judith Graham (07/28/00) Ever since it warned last month that fiscal fourth-quarter earnings would miss estimates and profit growth would slow, Procter & Gamble's (NYSE: PG - news) shares have floundered, trading near their 52-week low of $52.75 for the past seven weeks. And as the consumer products heavyweight prepares to release those fourth quarter results on August 1, the profit outlook for the next six months is still murky at best, as we cautioned on June 8. And many analysts wouldn't be surprised if negative revisions accompany the June quarter report. That said, an end to its recent period of uncertainty may actually be looming on the horizon. As the stock trades at historic lows relative to the broad market and its peers, potential downside is likely limited to another earnings revision, which analyst Andrew McQuilling of UBS Warburg estimates won't be more than 5% to 10%. Then, it will be just a matter of waiting for new senior management to set firm targets for 2001. Once these targets are set, sentiment should start to firm around the stock. In addition, a number of potential upcoming initiatives could further clear the haze surrounding P&G's shares. By September, analyst Constance Maneaty of Prudential Securities thinks we'll see several consumer products companies, led by Procter & Gamble, raise prices to offset some of the impact of rising raw materials costs. Just the ability to pass on these costs would be an accomplishment. Already in April, P&G raised prices on its Bounty and Charmin brand paper products in response to manufacturers' price hikes on paper products to cover the increase in pulp costs. It soon followed with a 7% increase on Puffs tissues after Kimberly-Clark (NYSE: KMB - news) raised the price of Kleenex. Last Friday, P&G said it would raise prices an average 6.4% on its Tide, Cheer and other laundry detergent brands because of higher raw materials costs. Price increases are expected to take effect in the diaper and feminine care product categories by the end of the summer. This pricing activity should enable revenue growth to exceed unit volume growth for at least the next three quarters, according to Maneaty. And with more price hikes expected, P&G may be in better shape than some expected. ``We think more price increases on are the way and that P&G will be in the forefront of most of them,'' Maneaty says. ``Its management also acknowledges that it is now in the process of raising prices more than raw material costs have risen, compared to the last few years when they were dropping.'' Maneaty estimates that both newly announced price increases and those already implemented in the paper products segment will reflect positively in sales by September. Warburg's McQuilling, meanwhile, says for the next year, most of P&G's performance will hinge on its execution of Organization 2005 - P&G's promise, outlined last June, to generate $900 million in cumulative restructuring savings between 2001 and 2004 and accelerate top-line growth. While the near-term profit outlook remains uncertain, McQuilling says P&G's current stock price mitigates the risk for investors. As the dominant player in its industry, P&G faces little threat from its competition, as no competitor can hope to match the scope of its research and development, its channel scale or the depth of its operational management. McQuilling says most of P&G's recent troubles are largely self-inflicted and are therefore addressable. While analyst Michael Ruesy believes P&G's equity appeal is gone for all but the most patient investors, he sees opportunity for the shares to rise for several reasons. Trading at 20 times 2001 earnings per share estimates, P&G's valuation is among the lowest in the personal care group, and similar to those awarded to food companies. Presented with such a cheap asset, Ruesy thinks P&G might use its balance sheet flexibility and free cash flow to generate greater equity appeal. With an estimated $1.5 to $2 billion in free cash flow for fiscal 2001, P&G could initiate a share repurchase to help boost the company's stock price and valuation, Ruesy notes in a recent report. At this point, until further notice, analysts continue to believe earnings growth will only come in the third and fourth quarters of fiscal 2001. Analyst Sally Dessloch of J.P. Morgan thinks it is possible that the company will lower earnings guidance for the September quarter, the fiscal year's first three-month period. She currently expects September quarter earnings of $0.88 per share - flat with last year - versus the $0.92 per share consensus. For the June quarter, analysts expect P&G to earn $0.55 per share, based on revised estimates. Before last month's earnings warning, the company was expected to earn $0.64 per share. It earned $0.55 per share in the year ago quarter. Bottom Line: Although the upcoming quarterly earnings report will be pretty weak, now is a good time to begin buying P&G's shares, given the potential catalysts coming later in the fiscal year.