We Fools tend to chide Wall Street for its short-term thinking. Accordingly, I think it's more than fair to congratulate analysts when they take a longer view.
Take Procter & Gamble
Surprisingly, several analysts expressed disbelief at the reaction. MarketWatch polled several of them in its earnings-day coverage of the stock. I think A.G. Edwards
And I happen to agree with them this time. P&G, after all, is a very healthy business. For example, management says sales gains were fueled by a 5% increase in organic volume, which equals products shipped, exclusive of the effects of acquisitions and divestitures. In addition, organic sales growth was up 6%, which exceeded management's long-term target of 3-5%.
Margins, too, were higher across the board. Take operating margin, which was up roughly 160 basis points and benefited from cost savings, pricing power, and higher volume. That gain also had a healthy impact on cash flow from operations, which rose more than 24% to $8.2 billion for the first nine months of fiscal 2006.
With the pullback, P&G now trades for 18.5 times next year's estimates. A quick check of Value Line shows the stock hasn't been that cheap on a P/E basis since 1995. And its current 2.20% dividend yield is 16% higher than its five-year average. That's enough for any investor to consider putting this stock on their watchlists. In other words, when it comes to its reaction on the P&G selloff, I'd have to say that Wall Street might actually be acting ... Foolishly. That may be a first, in which case I have to say: Great job on this one, guys.
Stock up on related Foolishness:
- You've seen the analysis; now get the numbers.
- How did Q2 go? Find out here.
- Forget the Pampers. How about some P&G stock for your little tike?
- For P&G, less is more.
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Fool contributor Tim Beyers figures he ought to own P&G for all the Pampers he's bought over the years. Unfortunately, Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out which stocks he owns by checking Tim's Fool profile . The Motley Fool has an ironclad disclosure policy .