It’s a tough market when investors buy into defensive stocks and then those defensive positions do not act all that defensively. Procter & Gamble Co. (NYSE: PG) has been a defensive stalwart for years, with a safe dividend and with a business model that thrives even in the worst of times. It turns out that when supply chains get interrupted and when large nations effectively have to shut down for a while, even the prized consumer products space is at risk.

After trading down to about $95 earlier this week, P&G shares have come back to above $100 again. The $2 trillion stimulus and rescue package is hopefully going to offset the nearly 3 million fresh weekly jobless claims and the coming major spike in unemployment. Now it is time to evaluate which companies and sectors were beaten up too much. P&G was down over 25% from its peak at the selling zenith earlier this week.

The independent research firm Argus raised its rating on P&G to Buy from Hold. Its $122 target price represented almost 20% upside from the prior close, but P&G now yields nearly 3%.

Argus noted that this turbulent environment is allowing investors to “dollar-average into existing long-term positions in the highest quality stocks.” The firm is talking about initiating new positions at discounted share prices while still being aware of the risks of future volatility in individual stock positions.

As for why Argus did not already have a Buy rating, it is because its analysis suggested that the company’s investment merits were reflected in the share price. In short, its valuation was too high to merit a Buy rating at that time. According to the report:

Historically, periods of severe stock-market turbulence have proven to be good times for investors with a longer-term time horizon to focus on the highest-quality and financially strongest names. We believe Procter & Gamble is one of these companies. P&G is one of the only companies in our consumer universe that earns a High financial strength rating. We also see investors allocating a higher percentage of their spending to maintaining a safe, healthy home. P&G makes highly in-demand products including: cold and flu products from Vicks, Sinex and NyQuil; Tide laundry detergent; Bounty paper towels; Charmin toilet paper; Puffs tissues; Pampers baby products; PeptoBismol; Cascade dishwasher detergent; Dawn dish soap; Microban sanitizer; and Mr. Clean cleaning products.

Argus does warn that, despite P&G being defensive, it has already proven to not be immune to disruption from the COVID-19 pandemic. The company had warned about the China risks in prior weeks, but a supplemental filing this week was made to the Risks section of its financial statements. The consumer products giant added that its business “may be hurt by reduced travel from quarantine or fear of exposure to the virus; disruptions to manufacturing or the supply chain; failure of suppliers and business partners; and restrictions that reduce employee travel or close manufacturing facilities.” Also worth noting about that risk amendment was that its Risk statement also appeared in its prospectus for a recent $5 billion filing to sell notes and bonds.

The report further said:

While we recognize that P&G faces a number of new and ongoing risks, we believe that P&G is attractively valued at current levels. The company’s Aa3/AA- credit ratings and ability to issue debt in these turbulent times is an illustration of the financial strength that Argus is emphasizing.

As for the formal $122 target price, Argus did add in that a discounted free cash flow model would yield a price valuation of $125 to $130 for the shares.

The firm is also maintaining its fiscal year 2021 earnings estimate at $5.25 per share, and its long-term earnings growth rate forecast remains at 8%. The analyst has contemplated reducing this long-term growth down to 6% or 7%, and it said it would be modeling some slightly slower growth scenarios in its valuation analysis.

Procter & Gamble stock traded up over 2% at $103.00 on Thursday, in a 52-week range is $94.34 to $128.09. Refinitiv still has its consensus target price up at $127.63.

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