Evercore no longer recommends buying Procter & Gamble stock. What's holding back growth?

Investment bank Evercore ISI dropped its recommendation to buy Procter & Gamble shares, attributing the decision to the fact that the company is losing out on online sales. More consumers are choosing home and hygiene products on Amazon, and P&G has good momentum in traditional retailers but not in online retailing. 

Evercore no longer recommends buying shares of home and personal care products company Procter & Gamble: analysts at the investment bank revised its rating from Outperform ("market outperform") to Neutral In Line ("market perform"), reports CNBC. They also lowered the target price from $190 to $170. The new target still implies a rise in the company's quotes over a 12-month horizon, but a smaller -only by 8% relative to the last close of trading on Friday, July 11. 

On Monday, July 14, shares of Procter & Gamble fell 2%. They are down nearly 9% since the beginning of the year.  

While the company is performing well at traditional retailers such as Walmart and Costco, Evercore's research points to Procter & Gamble's declining share on Amazon's platform. This is a concern given that the online retailer is now the fastest-growing seller of home and personal care products in the U.S., analysts said.

"In the U.S., Amazon now accounts for 50% of all growth in the HPC (household and personal care) category. This creates a [P&G] growth gap of 2 percentage points in the U.S. - or 1 point globally - compared to its major retail partners such as Walmart and Costco, where P&G maintains a competitive advantage through scale and product quality," Evercore analyst Robert Ottenstein wrote. 

He believes that as a result of consumers switching to Amazon, Procter & Gamble's growth rate could fall below the 4% needed to improve operational efficiency. The pressure is intensified by the fact that the company's Chinese customers have also started to prefer online shopping. All of this could hinder the recovery of the business.

According to the Evercore analyst, the shift to online is structural - it's already pushing companies like Walmart to expand their online platforms. And Procter will find it difficult in the short term to adapt to these changes within its current structure, especially amid growing macroeconomic instability, according Ottenstein.

"P&G has already factored in the risks of a sales slowdown due to the macroeconomic situation, but the negative effects from changing distribution channels take longer to manifest themselves," the analyst warned.

17 out of 25 analysts tracking the dynamics of Procter & Gamble, advise to buy its shares (ratings Buy and Overweight). Seven advise holding the stock in the portfolio (Hold) and only one suggests selling it (Underweight).

Wall Street's average target price is 12% above the last close.

This article was AI-translated and verified by a human editor