The Procter & Gamble Company (PG - Analyst Report) , also referred to as P&G, completed the separation of “P&G Specialty Beauty Brands” under Coty Inc. (COTY - Snapshot Report) on Sep 30. The P&G stock hit a 52-week high of $90.22 per share following the development. Year to date, P&G has seen its shares rise roughly 11.1% as against a 5.7% increase for the S&P 500 over the same period.
The upside reflects investor confidence on the company’s strategic moves which are likely to generate solid top- and bottom-line growth.
The $11.4 billion deal, which was announced on Jul 9, 2015, is a stock swap between the companies in which P&G’s investors were allowed to choose to tender all or part of their shares into the new company, named Galleria. Effective Oct 1, 2016, Galleria Co. merged with an affiliate of Coty and became a wholly owned subsidiary of Coty. Under this, Galleria’s common stock was converted into the common stock of Coty.
Following the spin-off, P&G has a portfolio of about 65 consumer and shopper-preferred leading brands focused on 10 categories under four industry-based sectors. Traditionally, these brands have grown faster and have proved more profitable than the others.
Weak sales have been offsetting margin improvement from pricing gains and cost cuts for some time now for P&G. In order to counter this, the company is investing in its brands and products as well as re-designing the supply chain to boost productivity and organic growth.
Under the portfolio strengthening and simplification plans announced in Aug 2014, P&G aims to streamline its business and focus more on prime brands, including Billion Dollar Brands like Tide, Pampers and Oral-B.
Though the divesture of the underperforming brands will hurt near-term sales, it is expected to boost profits over the long haul.
Notably, the company’s organic sales rose 2% in fourth-quarter fiscal 2016, driven by positive volumes for the first time in years.
Zacks Rank & Key Picks
P&G currently has a Zacks Rank #3 (Hold). Better-ranked consumer staples stocks are Reckitt Benckiser Group plc (RBGLY - Snapshot Report) and The Colgate-Palmolive Co. (CL - Analyst Report) .
Reckitt Benckiser Group is expected to witness a 1.9% decrease in 2016 earnings. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Colgate-Palmolive carries a Zanks Rank #2 (Buy). Full-year 2016 earnings growth is projected at 0.5% for the company.
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