A Quick Look at the Procter & Gamble Profit Machine

With shares of Procter & Gamble Co. (NYSE:PG) trading at around $73.01, 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

pg

Procter & Gamble never ceases to amaze investors. It’s one of the most consistent performers in existence. Quarterly income just more than doubled, and sales, earnings, and share repurchase outlooks were all raised.

Q2 EPS just came in at $1.22 versus an expectation of $1.11. Revenue came in at $22.18 billion versus an expectation of $21.91 billion. Gross margin increased 110 basis points thanks to higher pricing and manufacturing cost savings. Organic sales were up 3 percent. Net sales were up 2 percent. The only real negatives were higher pension and employee benefit costs, and restructuring charges related to the completion of the joint venture with Iberia.

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In regards to guidance, the EPS for the March quarter is expected to come in between $0.91 and $0.97. For the full year, EPS is expected to come in at $3.97 to $4.07. The repurchase outlook has been raised to $5 billion to $6 billion opposed to $4 billion to $6 billion.

Let’s take a look at some more important numbers for Procter & Gamble…

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Procter & Gamble is normal, but the balance sheet is in negative territory. This is normal for the company. Operating cash flow is over $13 billion.  

Debt-To-Equity

Cash

Long-Term Debt

PG

0.49

$5.30 Billion

$31.88 Billion

KMB

1.10

$1.25 Billion

$6.40 Billion

CL

1.95

$909.00 Million

$5.19 Billion

 

T = Technicals on the Stock Chart Are Strong

Procter & Gamble isn’t the place to be if you’re looking for extraordinary gains. It’s more about investing in an extraordinary company that will reward its investors at a slow and steady pace. Procter & Gamble has underperformed Kimberly-Clark Corporation (NYSE:KMB) and Colgate-Palmolive (NYSE:CL) over the past three years, but Procter & Gamble has outperformed those same competitors so far this year.

1 Month

Year-To-Date

1 Year

3 Year

PG

7.33%

8.32%

16.07%

32.48%

KMB

3.27%

2.49%

24.96%

61.62%

CL

5.22%

5.73%

25.80%

47.41%

 

At $73.01, Procter & Gamble is currently trading above all its averages.        

50-Day SMA

69.08

100-Day SMA

68.88

200-Day SMA

66.49

 

E = Earnings Have Been Inconsistent  

It might surprise you that there hasn’t been much earnings growth over the past five years. However, revenue has increased every year since 2009.

2008

2009

2010

2011

2012

Revenue ($)in billions

79.26

76.69

77.57

81.10

83.68

Diluted EPS ($)

3.64

4.26

4.11

3.93

3.66

 

We already know what happened this quarter. Now let’s take a look at previous quarters.  

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

21.53

22.14

20.19

19.82

20.74

Diluted EPS ($)

1.03

0.57

0.82

1.24

0.96

 

T = Trends Support the Industry

When the economic environment is in question, there is no better place to be than consumer staples. The stocks mentioned in this article did get hit during the financial crisis of 2008/2009, but they didn’t get hit as hard as most stocks. All of them also pay a healthy dividend.

Conclusion

Procter & Gamble yields 3.20 percent. This is a big selling point for owning the stock because you know the dividend payments are safe. Therefore, even if the stock gets hit, there will be some form of safety net. Procter & Gamble is one of the most successful companies in the world. That isn’t likely to change at any point in the near future. Raised guidance in every possible way only makes the stock more appealing.

Procter & Gamble is an OUTPERFORM.

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