By Tomi Kilgore
Truist cuts rating to hold, saying there are no catalysts on the horizon to recommend that investors commit new money to P&G's stock
Procter & Gamble Co.'s stock slumped Thursday after it was downgraded by Truist analyst Bill Chappell, who suggested investors may have shown the branded consumer packaged-goods company "too much love."
Chappell cut his rating to hold after being at buy for the past 14 months. He also cut his stock-price target to $155 from $165.
P&G's (PG) stock fell 2.2% in midday trading, which put it on track for a third straight decline. It was also the biggest decliner among components of the Dow Jones Industrial Average . The stock's $3.38 price decline shaved about 22 points off the Dow, which was down 160 points, or 0.5%.
Chappell said he believes P&G has done a "remarkable job" refocusing its product portfolio, cutting overhead and other costs by about $10 billion and improving investor sentiment.
He said the company, the parent of household brands including Tide, Bounty, Pampers and Swiffer, has shown that its success wasn't just because consumers spent more time at home during the COVID-19 pandemic, but was the result of more than five years of work. The problem is, he said, that success is now well documented.
The stock has rallied 8.4% over the past three months, compared with a 2.4% gain by the Consumer Staples Select Sector SPDR exchange-traded fund (XLP) and a 1.7% decline by the Dow. The stock is now trading above the high end of its historical valuation ranges on 5-, 10- and 20-year time frames.
"To be clear, we believe P&G as a company is operating at the highest level in the 20 years that we have covered the stock," Chappell wrote in a note to clients. "We simply do not see the catalysts on the horizon to recommend new money to the name at current levels."
He's also concerned that investors may be "over reading" the company's strong fiscal third-quarter report, in which the company beat profit and sales expectations, as a 10% increase in prices helped offset a 3% volume decline, and raised its full-year sales outlook. Chappell worries that investors believe P&G's core customer is mostly unaffected by increasing inflation, but he believes the volume declines are a sign of demand destruction.
"Either consumers are finding ways to use less of a product or trading down to lower-priced products," Chappell wrote. "We worry that this trend will only continue for the next few quarters as even the higher-end consumers become wary of the persistent higher price points."