Procter & Gamble's profitability will suffer because of rising costs and product pricing pressure, according to UBS.
The firm lowered its rating for Procter & Gamble shares to neutral from buy, predicting the company will report earnings below expectations in its next fiscal year.
“Near-term we are cautious that P&G is likely to guide FY19 earnings below Consensus … due to higher inflation and ongoing price/trade spend investments,” analyst Steven Strycula said in a note to clients Wednesday. “Longer term, we are hopeful P&G's $10bn cost plan and new employee incentive plan can reverse trends in underperforming categories but note this path may require P&G to pierce price bubbles where excessive gaps exist.”
The company’s stock is down 0.9 percent Thursday.
Strycula reaffirmed his $83 price target for Procter & Gamble shares, representing 5 percent upside to Wednesday’s close.
“Given current inflation rates and category price battles we recommend investors wait for a cheaper P&G entry point and for Street ests to fall lower,” he said.
The analyst estimates the company will generate fiscal 2019 earnings per share of $4.25 versus the Wall Street consensus of $4.43.
Procter & Gamble shares are underperforming the market this year. The stock declined 14 percent year to date through Wednesday compared with the S&P 500's 5 percent gain.
The company did not immediately respond to a request for comment.