Procter & Gamble Co. (NYSE:PG) is showing signs of a stronger turnaround after delivering better-than-expected fiscal first-quarter results. However, TD Cowen remains cautious as rising commodity costs and limited pricing power threaten earnings growth.
On Friday, TD Cowen analyst Robert Moskow maintained a Hold rating on Procter & Gamble and raised his price forecast to $166 from $150.
The analyst also increased his earnings and sales estimates, citing stronger U.S. market share trends and improving execution. Still, Moskow questioned whether the recovery could last as inflationary pressures intensify.
Strong Earnings Signal Turnaround Progress
Procter & Gamble reported fiscal first-quarter organic sales growth of 4%, beating the consensus estimate of 2.2%.
Organic sales volume increased 2.4%, while adjusted earnings rose 1% to $2 per share, above the $1.89 estimate cited by TD Cowen.
U.S. sales growth improved to 3%. The company also held or gained market share among 70% of its largest U.S. customers.
TD Cowen’s retail tracking data showed further improvement. Procter & Gamble’s U.S. retail sales increased 4.5% during the calendar third quarter, outpacing category growth of 3%.
The improvement follows weaker market share trends earlier this year, when competitive pressures raised concerns about the company’s restructuring efforts.
Moskow believes faster execution and organizational changes could help Procter & Gamble return to its long-term organic sales growth range of 3% to 5%.
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Rising Oil Prices Threaten Profit Margins
Despite improving demand, TD Cowen warned that higher commodity costs could limit earnings growth.
Procter & Gamble raised its fiscal 2027 forecast for after-tax commodity inflation to $1.4 billion from $1 billion.
Management also warned that cost pressures could increase further if oil prices remain near $113 per barrel.
The analyst expects higher input costs to weigh on profitability, particularly during the fiscal second quarter.
The company’s first-quarter gross margin fell 152 basis points, while its operating margin declined 75 basis points.
Management expects second-quarter gross margin to contract about 200 basis points as higher commodity costs flow through the business.
Pricing power remains another concern.
Procter & Gamble’s first-quarter pricing increased just 0.4%, reflecting intense promotional competition in the U.S. market.
TD Cowen believes those competitive conditions could make it difficult for the company to raise prices enough to offset inflation.
Analyst Raises Estimates but Remains Cautious
Moskow raised his fiscal 2027 organic sales growth estimate by 70 basis points to 3%, above the 2.3% consensus estimate.
He also increased his fiscal 2027 core earnings forecast to $7.03 per share from $6.91, representing about 2% annual growth.
The revised $166 price forecast reflects a valuation of roughly 23 times TD Cowen’s estimated forward earnings of $7.28 per share.
However, Moskow said the company needs to demonstrate sustained improvement before earning a more bullish rating.
The analyst cited several periods of encouraging performance over the past two years that failed to translate into lasting momentum.
He also warned that persistently elevated oil prices could weigh on earnings into fiscal 2028.
For now, TD Cowen sees evidence that Procter & Gamble’s turnaround is progressing, but remains unconvinced that stronger sales can fully overcome rising costs.
Investors will get another opportunity to assess the company’s recovery strategy at its investor day on Nov. 19.
PG Price Action: Procter & Gamble shares were down 2.61% at $161.27 at the time of publication on Friday, according to Benzinga Pro data.
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