Procter & Gamble Is a 'Great Company,' Analyst Says. Why the Stock Still Isn't a Buy Right Now.

Procter & Gamble stock fell Thursday after a downgrade from Truist, which warns that cash-strapped consumers could trade down to more affordable items.

Truist Securities analyst Bill Chappell says Procter & Gamble (ticker: PG) is "still a great company, just not a great stock in [the] near term." He downgraded shares to Hold from Buy and cut his 12-month price target to $155 from $165 in a research note Thursday.

Shares of P&G were down 1.7% to $152.57 in recent Thursday trading. The stock has gained 0.6% this year, compared with a 9% rise for the S&P 500 .

P&G's organic volumes have declined year over year for the past four quarters, and that points to weakening demand over the long term, Chappell writes.

"Either consumers are finding ways to use less of a product or trading down to lower priced products. 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," Chappell said. "As behavior change ensues (trade down/using less), it will become increasingly difficult to trade those consumers back up to premium products/categories."

P&G didn't immediately respond to a request for comment.

Chappell's downgrade comes about a month after P&G posted fiscal third-quarter earnings and revenue that beat Wall Street estimates and boosted its full-year sales outlook. The company attributed its increase in revenue to price hikes. However, the company's CFO said that while management is "cautiously optimistic," it doesn't expect totally smooth sailing ahead.

"We continue to expect more volatility in the macro and consumer environment and expect sustained pressure in costs and foreign exchange as we move forward," Chief Financial Officer Andre Schulten said on the company's most recent earnings call.

P&G isn't the only consumer-facing company to cite concerns about demand as inflation remains historically high and recession fears linger. Target (TGT) recently warned of slower sales trends . Also, the University of Michigan said last week that May's preliminary index of consumer sentiment fell to the lowest reading since November 2022 .

But Chappell's downgrade is about more than the health of the U.S. consumer; it's also about valuation. P&G stock is currently trading at 24.6 times forward earnings, above its historical average.

"We believe the company has done a remarkable job of refocusing its product portfolio, cutting about $10 billion of overhead and other costs and improving investor sentiment over the past five years," Chappell said. "However, we now believe the current valuation of the stock fully reflects those turnaround efforts,"