Is Procter and Gamble Recession Proof?

With concerns of an impending recession looming large and Goldman Sachs pivoting away from momentum stocks to value stocks, one stock that may fit the bill is Procter & Gamble.

Although the share price has been somewhat volatile subsequent to fiscal Q4 2024 earnings results, P&G bounced back nicely to make an assault on all-time highs. It reveals just how resilient the company is in the face of an increasingly cloud economic environment.

Yet Procter & Gamble has a lot more going for it than a steadily climbing share price. Over the past 68 years it has consistently raised its dividend, a feat accomplished by very few other firms. Warren Buffett favorite, Coca Cola, is a rare rival in this category.

But there is another tailwind under the surface that may well support this stock even if a recession hits as Goldman forecasts with 25% probability.

Hidden Tailwind Supports P&G

One support mechanism a management team can orchestrate to support a share price is a buyback and in the case of P&G it’s a big one.

In fiscal 2024, P&G authorized $5 billion in share repurchases and what’s better is it plans to boost this to between $6 and $7 billion over the coming fiscal year.

For shareholders, the spoils keep coming because the company paid $9.3 billion in dividends this fiscal year and plans to increase that to $10 billion next year.

paid $9.3 billion in dividends and made $5 billion in share repurchases. The company plans to increase dividends to $10 billion and stock repurchases to $6-$7 billion in fiscal 2025.

The increase clearly signals confidence among management that the business model will be sturdy enough to thrive during any impending recession. Despite earnings growth being modest in recent years, P&G maintains a reasonable payout ratio and generates sufficient earnings to support both dividends and share buybacks.

The Risks of Buying P&G Now

While there is lots to like about Procter & Gamble, some concerns arise at this time surrounding valuation.

To begin, the consensus price target among analysts now is $173.95 per share, which is close to where the current share price resides.

A 5-year discounted cash flow forecast corroborates the valuation concerns and puts fair value closer to $160 per share.

And then there’s the fact that 11 analysts have revised their earnings estimates lower for the upcoming period. When you put the earnings growth forecasts next to the current price-to-earnings multiple, you end up with a PEG that suggests overvalued.

Even the P/E ratio alone of 27x suggests the company is trading at somewhat of a premium, particularly against the backdrop of 3.8% forecast revenue growth rates over the next 5 years and 6.2% net income annualized growth.

Is P&G Stock a Buy?

A concerted effort was made by P&G some time ago to reduce brand count and focus on profitability over sales. The net result was significant margin expansion. By prioritizing high margins over aggressive sales growth, P&G has raised prices to combat inflation, leading to 4% organic sales growth in fiscal 2024.

Going forward, P&G has a few other things in its favor. It has a perfect Piotroski score suggesting rock solid fundamentals. The dividend of 2.37% isn’t overly compelling but is sufficient to attract income investors. And profitability and cash flows are expected to be abundant. Plus, management expects 3% to 5% organic sales growth and 5% to 7% core EPS growth for fiscal 2025

The bottom line is P&G’s strong pricing power, focus on margins, and consistent dividend growth make it a high-quality business holding for the long-term for any investor concerned about riding out a wave of volatility and an impending recession.

Is Procter and Gamble Recession Proof?

Procter and Gamble has historically been resilient during recessions because it is largely a consumer staples stock that experiences steady demand regardless of the economic cycle.

The combination of products offered, whether Tide detergent or Gillette razors, find their way into consumers shopping carts no matter how good or bad the economic climate.

For instance, during the Great Recession of 2007-2009, while many companies suffered severe losses, P&G’s stock remained relatively stable and even a slight dip in revenues led to a quick bounce back.

The elements of the business model that support P&G are an extensive range of products across multiple categories that ensure the company isn’t overly reliant on any single product line as well as strong brand loyalty, such as Pampers, Olay, and Crest.

Around the world the company has a presence too so it’s also geographically diversified in 180 countries. 

Plus, the company’s rock solid balance sheet and existing distribution network makes it very difficult for competitors to dislodge its products from the shelves.

All in all, Procter & Gamble is a stock that likely deserves a spot in most investors portfolios. While valuation is somewhat elevated it may be a watch-and-wait for now but on a dip, it remains as ever a compelling stock to own for the long-term.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.