Market Extra: Procter & Gamble faces growing skepticism

SAN FRANCISCO (MarketWatch) � Procter & Gamble, the world�s largest maker of daily household essentials, faces growing skepticism on Wall Street as it continues to lose ground in most of its core product markets. And this isn�t exactly good for the struggling stock.

On Monday, P&G, maker of billion-dollar brands Pantene shampoo and Tide laundry detergent, was downgraded by two stock-equity analysts who are growing concerned the consumer staples giant can reverse the trend.

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P&G PG � shares fell almost 2% to $63.18 in afternoon trades.

UBS cut the stock to neutral from outperform, while BMO Capital lowered its rating to market perform from outperform. In addition, they and other analysts slashed their fiscal 2012 profit estimates and stock-target prices.

In its earnings report Friday, P&G dashed investor hopes that it would �improve earnings growth� this year as CEO Bob McDonald had pledged three months ago. Market share losses, a weak euro and price-wary consumers didn�t help. P&G cut its June 2012 fiscal earnings outlook to between $4 and $4.10 a share. Analysts had expected $4.33 a share.

So how did price hikes on Cascade dishwasher detergent and other items affect business in the recent quarter?

P&G said it lost market share on 13 of its 24 brands that make more than $1 billion in sales a year. Demand was weaker in economically-richer markets like North America and Western Europe. Volume rose 1%, not close to the growth rates in fiscal 2011.

Reuters

Meanwhile, gross margin slipped to 49.7% from 51.8% of sales as P&G continued to absorb lofty costs for resins and other commodities.

P&G shares, historically seen as a good stock investment during volatile economic times, haven�t been the leader that one would assume.

Since January 2009, P&G shares � including dividend payments that aren�t reinvested back into the stock � have returned 24% based on current trading prices. The S&P 500 has returned 56% on a comparable basis, according to FactSet Research data.

Over the past year, P&G�s stock is down 1.6% (excluding its annual dividend payment of $2.10 a share) compared with a 10% gain for the S&P Consumer Staples Index.

�P&G is the company that investors look towards to absorb volatility instead of falling victim to it. From where we sit today, it is hard to see how the next one to two years will [be] any different than the last five,� UBS analyst Nik Modi wrote in his report Monday.

On a forward basis, P&G is trading at a price-to-earnings ratio of 15.5 times the consensus profit estimate of analysts. That valuation is a premium to the S&P 500, which is trading at 13.6 times earnings.

/quotes/zigman/238894/quotes/nls/pg PG 62.32, -0.63, -1.00% /quotes/zigman/3870025 SPX 1,313.32, -19.10, -1.43%

Despite the company�s recent setback, Oppenheimer analyst Joseph Altobello still thinks P&G shares are worth owning.

�We believe there is some reason for optimism, and that the worst is behind us, as market shares should improve and commodity pressures wane,� Altobello wrote. He kept his outperform rating on P&G.

If so, P&G shares could climb 12% over the next 12 to 18 months, according to the average target price of analysts surveyed by FactSet.