The CEO is the most powerful role in a company. These individuals are fed the latest information regarding sales, financials and the economic outlook. In addition, they are in the unique position to have a high-level overview of the company's outlook and future direction. Given these factors, it can be a great idea to track how a CEO is trading shares of their own company.
It should be noted that CEOs can sell stock for a variety of reasons, from general market fear to needing to buy a new holiday home. They get paid mainly in stock, so naturally, they'll need to sell shares from time to time in order to buy the things they want. Therefore, I recommend taking insider selling data with a healthy grain of salt.
• None The intrinsic value of PG
However, if a CEO sells a massive part of their holding in their company's stock, it could be worth taking note of. I used the GuruFocus CEO trades screener to sort CEO stock sales by the largest number on a percentage basis. For example, if a CEO only sells 5% of their overall holdings, this is less interesting. However, if they sell 50%, then this is a strong bearish datapoint in my eyes. Lets dive into the two blue-chips I discovered that CEOs are selling massive amounts of.
Proctor & Gamble (NYSE:PG) is a large blue-chip company that operates in the consumer packaged goods industry. It has a $350 billion market capitalization, an army of over 106,000 employees and a vast complex structure, selling a huge variety of products that are mainly related to personal care and hygeine.
The company actually has multiple CEOs for its various divisions, led by the CEO of the overall company, Jon R. Moeller. The CEO of the fabric and home care division, Sundar Raman, sold a staggering 14,922 shares at an value of ~$2 million recently. This sale represented a substantial 44% of his entire position and was made at an average price of $139 per share in the fourth quarter of 2022.
This implies that Raman might believe the company could face challenges. This is a big deal as the segment that Raman is in charge of is a substantial portion of Proctor & Gambles total revenue and contributes ~32% of net sales. When I dive into the third quarter results for 2022, I see that this business unit reported a 4% decline and only a 1% increase in net sales.
This business segment includes iconic brands such as Tide, Downy, Lenor, Dawn and even Febreze. Given many of these product types are essential no matter what the economic environment, it's possible that the decline in volume may be driven by substitution to competitor products. For example, declining consumer buying power in light of inflation could have caused some consumers to switch from premium well-known brands to budget alternatives. An issue with this is the consumer may form new habits and realize there isnt much difference in the end results for commodity tasks such as washing dishes. This segment was also impacted by a 6% foreign exchange headwind due to the strong dollar.
Proctor & Gamble's beauty segment CEO, Keith Alexandra, also sold 37% of his holding in the stock for approximately $4.67 million in the fourth quarter.
In the third quarter, Proctor & Gamble's overall sales came in at $20.61 billion, which only increased by 1% year-over-year. However, a positive was this still beat analyst expectations by $266.97 million. This was mainly impacted by declining product volume across all its segments, with the largest being the aforementioned fabric and home care division. Therefore I dont believe it is a coincidence that the division's CEO has recently sold a substantial portion of his stock.
A positive is that the company reported solid earnings per share of $1.57, which beat analyst estimates by $0.03. The company also has a strong balance sheet with $6.7 billion in cash and short term investments compared to $33 billion in total debt, with $11.7 billion in current debt due within the next two years.
Proctor & Gamble is not trading cheap with a forward price-earnings ratio of 26, which is 9% higher than its five-year average.
The GF Value chart indicates a fair value of $151.75 per share, which means the stock is fairly valued at the time of writing.
Given the number of opportunities in the market, the CEO sales and tepid business fundamentals, I believe the oulook for CEO is lackluster at this time.
Accenture (NYSE:ACN) is a global consulting company with an elite customer base that includes 75% of the Fortune 500. The company acts as an external strategist helping large organizations grow revenue, improve efficiency and digitally transform. Its four main segments are: strategy and onsulting, interactive, technology and operations. The business helps clients across five industries: communications, financial services, health service, media/technology and products.
The CEO of Accenture is Julie Sweet, who was formerly the head of its North America segment before taking the top spot in 2019. Sweet has been continually selling Accenture stock over the past few quarters. In the third quarter of 2022, she sold 8,600 for an approximate value of $2.3 million. This transaction reduced her stake by 16%. Then in the fourth quarter of 2022, she sold another 8,600 shares at $2.2 million in total, reducing her total stake by 24%.
These sales are fairly extensive and thus could indicate the CEO's uncertainty about the economic outlook. Fewer organizations will be inclined to pay hefty consultancy fees during a period of economic uncertainty.
A positive for Accenture is the business reported solid financial results for its fourth quarter of fiscal 2022. Revenue was $15.42 billion, which increased by 15% year-over-year. This growth rate was slightly slower than in previous years of over 20%. However, this slowdown driven mostly by foreign exchange headwinds.
The company reported earnings per share of $2.60, which surpassed analyst estimates by $0.03.
Accenture trades at a forward price-earnings ratio of 26, which is 7% cheaper than its five-year average. However, relative to the average price-earnings ratio of the S&P 500, which is 15, the stock is not exactly cheap.
Tracking the trades made by CEOs can provide valuable insights into the outlook of senior management. In this case, by investigating heavy insider sales, it has led me to discover issues in Proctor & Gamble's main business units. Accenture is a more interesting case, as on paper the company is still performing strong. However, the CEO may have foresight into the outlook which may not be so pretty given the macroeconomic environment.
This article first appeared on GuruFocus.