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Does Reinvestment at P&G Push Stock Higher or Lower?

Tuesday, 26 May 2009 | 4:25 PM ET

Two analysts are serving up decidedly different views on Procter & Gamblesharestoday, even though both agree it's time for P&G to reach into its pockets and start investing more in its business.

Procter and Gamble
Procter and Gamble

BMO Capital upgrades P&G shares to outperform from market perform in the hope that concerns about the company's earnings power will be resolved when the household products giant provides its fiscal year 2010 forecast on Thursday.

But J.P. Morgan analyst John Faucher, who has been issuing notably below consensus forecasts for P&G for the past few months, offers a different opinion. He sees the combination of higher spending and portfolio restructuring bringing down the bottom line, and he's sticking with his neutral rating.

Right now, the average analyst forecast for 2010 is $3.96 a share, down from $4.11 in mid-March when Faucher first cut his estimates, he says. The analyst now is trimming his estimate down to $3.70 a share.

Faucher has a wish list for P&G's spending. He'd like to see the company increase its spending in Latin America, cut prices in fabric care, and spend more on promotions at Wal-Mart .

"PG also needs the flexibility to jettison slower-growth divisions," he says. "With lower expectations, divestitures of businesses like pharma, Pringles, batteries, and some paper products may be more feasible, and with the drama surrounding the gain/restructuring/dilution of Folgers."

P&G CEO A.G. Lafley speaks Thursday at 8 a.m. New York time at the Sanford Bernstein conference.

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