Published On: Sun, Oct 8th, 2017

How to get P&G's stock above $100 per share

EmbedShare Take a virtual shopping trip to find all of Procter & Gamble's products. Sam GreeneProcter & Gamble corporate headquarters.(Photo: John Minchillo, AP)Most of the back and forth between P&G and hedge fund boss Nelson Peltz has been high-minded strategic vision, peppered with a few low blows.But with both sides trying to keep options open, there has been little candid talk about brass tacks. Specifically, what are the numbers behind actually increasing the value of P&G’s stock in the near and long term?Getting P&G’s stock above $100 per share would be a feat that has eluded the company for more than a decade. Typically, once P&G trades in triple digits, it splits – doing so the last time in 2004.P&G’s lagging share value is why the company is vulnerable to Peltz’s hedge fund Trian Fund Management’s proxy fight effort to install Peltz on the board of directors.Getting to $100, is rather mundane actually – you don’t need to be a genius, you need a good grasp of eighth-grade math to ballpark.

More: Follow USA TODAY Money and Tech on FacebookFor the last five years, P&G’s stock has been priced at an average of 22 times annual earnings. For the current fiscal year, P&G has indicated it will generate about $4.16 in earnings per share. Multiply that times 22 and you’ve got a stock worth about $91.50 – which where shares are currently trading.To get the share price to $100, back-of-the-envelope calculations suggest P&G needs to consistently generate at least an extra 38 cents in annual earnings per share.In plain English, P&G needs to find a way to generate at least an extra $1 billion in annual profits to boost its share price. This would be on top of the 5 to 7 percent earnings per share growth already forecast by the company.Trouble is, even if P&G managed a 20-percent profit margin on extra sales, the company would have to rev up its revenues 8 percent to generate the extra profits without cost-cutting.Local analysts say that will be very difficult. P&G has forecast it will grow sales 3 percent in the fiscal year ending June 30 and between 2 percent and 3 percent, excluding foreign exchange, acquisitions or divestitures.”This might be achievable over the long run but not likely in the short-term,” said Terry Kelly, principal at Bartlett & Co. Downtown. “A tall order indeed.”Analysts say to goose P&G’s stock, it needs to meet or exceed its sales guidance and deliver further cost cuts. It can also boost earning per share with continued and accelerated share buybacks. Kyle Moore, a portfolio manager at Riverpoint Capital Management, said more cuts are likely, but stressed sales growth is vital to convince investors P&G is worth more.”It’s safe to say that P&G will need to continue cutting costs,” Moore said. “But the real issue is topline growth. It’s tough … if volumes and revenues aren’t growing much.”Moore said P&G might get a little more sales momentum if sales in China (P&G’s No. 2 market) outperform and/or the company found a good acquisition.Nelson Peltz, CEO, Trian Fund Management. Photo shot Wednesday August 30, 2017.  (Photo: Cara Owsley, The Enquirer/Cara Owsley)
Even if P&G dodges Peltz getting elected to its board of directors, the activist investor has said he will keep a hold of his $3.5 billion stake. P&G will likely look for extra earnings to lift the stock and blunt Peltz’s influence.So don’t be surprised if the company accelerates the pace of its ongoing $10-billion cost-cutting campaign or announces further cuts.”Both Peltz and P&G management share the same goal – a higher stock price,” said Andy Stout, managing director of investments at Simply Money. “Will it get to $100? That’s only about 9 percent higher from today’s value … So it could reach that level soon without the need for a mass reorganization like many think Peltz wants to do.”