Daily Brief: P&G’s Results Look Great, So Why Are Investors Snubbing Its Shares?

Daily Brief: P&G’s Results Look Great, So Why Are Investors Snubbing Its Shares?

about 3 years ago3 mins

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Procter & Gamble (P&G) is all spruced up with nowhere to go: the owner of Gillette, Pampers, and Pantene released better-than-expected earnings on Wednesday.

What does this mean?

There’s not exactly much to spend money on outside the house right now, so it looks like everyone’s been treating themselves to premium products they can enjoy between their own four walls. And that’s what P&G does best: the consumer staples company saw an 8% uptick in sales last quarter compared to the same time the year before, thanks in large part to the popularity of its shaving, styling, and cleaning products.

Second-quarter organic sales rose in all of P&G's units from a year ago

P&G doesn’t think demand’s going away anytime soon either: the days of panic-stockpiling are over, sure, but shoppers aren’t likely to be quite so relaxed about hygiene ever again. The company’s so confident people aren’t going to wash their hands of, uh, washing their hands, in fact, that it upped its full-year earnings forecast.

Why should I care?

Zooming out: Old habits die hard.

Investors don’t necessarily share P&G’s can-do attitude: they’re concerned that pandemic-driven consumer habits – working from home, binge-watching movies, and online shopping – might scale back when the world opens up again. But at least it’s not just P&G they’re keeping a skeptical eye on: they’re just as suspicious of tech, streaming, and parcel delivery firms’ recent successes too.

P&G share-price performance
Source: The Wall Street Journal, FactSet

The bigger picture: A bit less “Gamble”, a bit more “play it safe”.

Despite its surge in sales last year, P&G didn’t see its shares rise as much as the overall US stock market. That might be because it’s a “defensive” company that tends to see pretty stable demand no matter how the economy’s doing. That means it usually outperforms other stocks during market crashes – like it did last March – but lags behind them when investors see better days ahead – like it has since the vaccines were announced in November.

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Morgan Stanley Reported Better-Than-Expected Results

Morgan Stanley image

Those retail investors Morgan Stanley’s been picking up have a real kick to them: the investment bank announced better-than-expected results on Wednesday.

What does this mean?

After tearaway earnings from JPMorgan Chase and Goldman Sachs in the last week, expectations for Morgan Stanley were high. But the bank duly knocked them out of the park: its bottom line got a boost from the surge of investors who piled into the pandemic-shaken markets, as well as from the sheer number of initial public offerings it was paid to advise on. Its wealth management division – which looks after money for the uber-rich and tends to be the most stable of its businesses – did better than expected too. That might’ve come as a relief to investors: it accounts for a massive 42% of its revenue.

Big banks' fourth-quarter results, compared with a year earlier

Why should I care?

Zooming in: Me, me, me-trade.

One reason the bank’s wealth management business is doing so well is E*Trade – the retail trading platform Morgan Stanley acquired in February last year to compete with the likes of Robinhood. Retail trading is big business right now, and it’s easy to see why: the stock market’s high-profile hardships last year suddenly turned everyone – maybe even you – into an armchair investor.

Stock performance and index
Source: The Wall Street Journal

The bigger picture: Bank eat bank.

Morgan Stanley says that the bigger its wealth management business grows, the more profitable its overall business should become. And since that segment’s on the up and up, the company just upped its long-term “return-on-equity” target – a key metric used to judge banks’ profitability – from 15-17% to more than 17%. That’s a subtle shift, but it puts the bank at the upper end of Goldman Sachs and JPMorgan’s own projections – which could make all the difference to investors.



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