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  • With operating cash flow growing to $4.1 billion and the company buying back $1.5 billion of its common stock, this is a "no-brainer" as investments go.
  • With the stock trading at $80, which is $5 from its 52-week high, I project fair-value to reach $90 on the basis of margin expansion and growing cash flow.
  • When you consider the 30 basis-point jump in operating profit margin, it's hard to see what's not to like with one of the best-perfoming companies on the market.

With the Dow Jones Industrials (DJI) posting new highs seemingly every other day, investors have begun to feel more confident about their positions. So far this earnings season, more companies have outperformed than those that have missed. So it's a little surprising that shares of Procter & Gamble (NYSE:PG) didn't react favorably to yet another strong quarter, given how much the company weighs on consumer sentiment.

While Procter & Gamble, which competes with (among others) Clorox (NYSE:CLX), does not boast the sexy growth numbers that the Street would like, you would be hard-pressed to find a company with a stronger balance sheet. Since activist investor Bill Ackman became involved with Procter & Gamble, the company announced a $10 billion cost-cutting program, which has helped boost earnings per share and overall profitability. And investors would be wise to not overreact to fiscal third-quarter results that - for any other company - would be cheered.

The company reported core earnings per share of $1.04, which represents 5% jump year over year. Note; the consensus earnings per share estimate had called for $1.02 per share. Also consider that core earnings jumped 17% year over year, when accounting for currency fluctuations. Diluted net earnings per share were 90 cents, which grew 2% year over year. This tells me that management's efficiency improvements have begun to pay dividends.

Now, given Procter & Gamble's global reach and the various markets in which it competes, the company, like Johnson & Johnson (NYSE:JNJ), has grown on the basis of various acquisitions. Because of this, analysts love to scrutinize organic growth. This is the metric that gauges the company's growth performance using internal factors while excluding things like mergers and acquisitions.

While Procter & Gamble's organic growth has been criticized over the past couple of quarters, I believe the company's 3% organic growth performance this quarter serves as a victory. Even more impressive, the company was able to do this amid flat revenue growth. In fact, organic revenue arrived at or above year-ago levels in each of the company's businesses. This was helped by a 3% jump in overall volumes. Total revenue was $20.6 billion, unchanged versus the prior-year period but arrived in line with analysts' expectations.

Here, too, when you consider the impact of currency fluctuations, which affected revenue by -3%, Procter & Gamble has to be given a pass here. Consider, over the previous four quarters, revenue has fallen by an average of 4% year-over-year, including a 2% decline in the third quarter. So from that standpoint, flat revenue should be considered an improvement. And when you consider the 30 basis-point jump in operating profit margin, it's hard to see what's not to like with one of the best-performing companies on the market.

I realize investors may be experiencing a "sell the news" attitude with these results. We will find out soon enough how these numbers compare when Clorox, Colgate-Palmolive (NYSE:CL) and Kimberly-Clark (NYSE:KMB) issue their reports. For now, I remain impressed by Procter & Gamble's momentum and signs of growing volumes.

With operating cash flow growing to $4.1 billion and the company buying back $1.5 billion of its common stock, which returned $1.7 billion of cash to shareholders, this is a no-brainer as investments go. With the stock trading at $80, which is $5 from its 52-week high, I project fair-value to reach $90 on the basis of margin expansion and growing cash flow. This is still $7 shy of analysts' highest price target of $97. But with ongoing cost-cutting measures and capital redistribution plans, I may have to revise my target soon.

Source: Why Procter & Gamble Will Trade At $90