Is Procter & Gamble a Risky Investment?

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With shares of Procter & Gamble (NYSE:PG) trading at around $76.57, is PG an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Sound the alarm! Procter & Gamble has seen slowing growth, and it has lowered FY 2013 guidance. FY 2013 EPS has been lowered to $3.94 to $4.04 from $3.97 to $4.07. In a Wall Street sense, this is terrible news, but if you’re looking at this change in a macro sense, it isn’t cause for concern. Whichever way EPS plays out, it will still be an improvement over 2012. Q3 EPS expectations have been lowered to $0.90 to $0.96 from $0.91 to $0.97. The lowered guidance is primarily due to Venezuelan currency devaluation. Another negative is pricing pressure, but this ebbs and flows.

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Sticking with the negative theme, some analysts feel as though Procter & Gamble has been too ambitious with its product line. Those analysts are probably correct. However, Procter & Gamble can always divest, which would quickly improve operations and act as a potential catalyst for upward stock movement.

On the positive side, Procter & Gamble has a plan of saving $10 billion by 2016. This will help the company reach its goal of improving manufacturing productivity by 5 percent annually. The aim is to reduce spending in supply chain, R&D, marketing and overhead. Approximately 5850 jobs have already been cut since February 2012.

Procter & Gamble will also aim for an increase in change innovations, which basically means improvements in current products. It has relied on this strategy for many years, and it has been a proven winner. The company has strong margins, operating cash flow of $14.41 billion, a dividend yield of 3 percent, and it expects organic sales growth between 3 and 4 percent. So at this point, it looks like an interesting blend of good news and bad news. Let’s take a look at some important numbers prior to forming an opinion on the stock…

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