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Citi Upgrades Procter & Gamble Stock to 'Buy'

Citigroup raised its price target for Procter & Gamble Thursday to $66 per share and said the company will likely beat its conservative earnings expectations as it goes on the offensive against competitors.

“PG is readying itself to become more aggressive in order to win back lost market share,” Citigroup Analyst Wendy Nicholson wrote in a research note.

“This is more a call on the stock than on the company … with expectations now having been set pretty conservatively for full-year 2010, we think the risk of a miss to our estimate is low,” she added.

Shares of Procter & Gamble closed at $56.79 Thursday and have been underperforming the wider market of late, according to the Citi note.

Nicholson and the other Citi analysts were impressed by P&G’s acceptance of its own failings, as well as its more dynamic approach to tackling competitors.

Boxes of Procter & Gamble's Tide with Bleach.
Mark Lennihan
Boxes of Procter & Gamble's Tide with Bleach.

“In our meeting with PG today, we were struck by management’s seemingly genuine "mea culpa" attitude with respect to its recent performance,” Nicholson wrote.

New CEO Bob McDonald is behind the company’s aggressive sprit and his “new plan to attack specific competitors (is) just about as aggressive as we've ever heard,” according to Nicholson.

The consumer product manufacturer, which is known for brands like Pampers, Gillette, and Duracell, had been “playing nice” for too long, according to the note. It had tried to raise its prices in the hope of gaining profitability, but lost market share as competitors didn’t follow suit.

Success for P&G is not guaranteed, however, the note pointed out. The competitive environment and global consumer environment is still tough, it said.

“We believe that PG should trade at a 15 percent premium to the market multiple (vs. a 5 percent discount previously) … we are upgrading PG to a Buy rating from a Hold,” the Citi note said.

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