Procter & Gamble managed to edge 0.17% higher on the session to close at $96.65 a share, against a 2.02% decline for the Dow Jones Industrial Average ^DJI , after Morgan Stanley analysts upgraded the consumer group to overweight from equal weight and boosted their price target on the stock by $15 to to $106 a share.
"Broad-based market share momentum, an improving gross margin outlook, and greater earnings achievability are not adequately reflected in relative valuation verses peers" the analysts wrote in a note to clients. Procter & Gamble is valued at 25 times trailing twelve month earnings, against Colgate-Palmolive Co.'s (CL) multiple of 26.
The new price target is 9.7% above the stock's current level.
Evidence points to increased market share in the U.S. in 2019 for the company. "Reduced promotional intensity suggests better execution/innovation underpin U.S. share gains," the note said. Plus, P&G could see increased pricing power in 2019 according to the analysts, which supports the gross margin expansion expectation.
Not only could the gross margin expansion be "led by improving price realization" on several products, but Morgan Stanley expects "less onerous commodity cost headwinds."
The optimism also reflects solid underlying growth in core U.S. retail sales, which rose 0.9% year over year lat month, according to Commerce Department data published Friday, topping the 0.5% consensus estimate as gas prices tumbled and left more spare cash in American shoppers' pockets.
Earlier this year, P&G had faced rising commodity costs resulting from some of the tariffs President Trump had put on raw materials. That cost pressure, though, will likely abate, a positive for the company's gross margins. Morgan Stanley now expects higher earnings-per-share, raising its estimate to $4.75 from $4.22.
As the broader U.S. market has gotten hit since the beginning of October, Procter & Gamble has outperformed, as investors have move away from cyclical stocks like consumer discretionaries, and into defensive stocks like consumer staples, of which P&G is one. It's up 17.6% since October 9. The Invesco Consumer Discretionary ETF is down 7.55%n in the past three months. Investors have become more defensive as economists are predicting weaker economic growth in 2019 against 2018.