Is Procter & Gamble Still a Winner?

With shares of Procter & Gamble Co. (NYSE:PG) trading at around $77.75, 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

Do positives still outweigh negatives for Procter & Gamble? That’s for the reader to decide. However, an opinion will be given in the Catalyst section.

Positives:

  • Improving market trends in North America
  • Health Care segment saw 8 percent organic sales growth last quarter year-over-year
  • Strong margins
  • Strong cash flow
  • 3.10 percent yield
  • Reduced share count
  • Lower taxes
  • Strong cost savings (overall)
  • Quality debt management (stronger than peers)
  • Held up relatively well in 2008/early 2009
  • Analysts love the stock: 13 Buy, 12 Hold, 0 Sell
  • Plans to repurchase $6 billion worth of stock
  • Sensational long-term stock performance
  • Innovation and portfolio expansion in Health Care segment

Negatives:

  • Weak guidance
  • Foreign currency headwinds
  • Weakness in Beauty segment (increased competition)
  • Increased marketing costs

It should be noted that Procter & Gamble has an extraordinarily high rating on Glassdoor.com. Employees have rated their employer a 3.9 of 5. That might not sound high to those unfamiliar with Glassdoor ratings, but it’s one of the highest ratings we have seen. This indicates that the company culture is very strong. An amazing 88 percent of employees would recommend the company to a friend, and a relatively impressive 76 percent of employees approve of CEO Bob McDonald.

Now let’s take a look at some comparative numbers. The chart below compares fundamentals for Procter & Gamble, Kimberly-Clark Corporation (NYSE:KMB), and Colgate-Palmolive (NYSE:CL). Procter & Gamble has a market cap of $212.74 billion, Kimberly-Clark has a market cap of $40.10 billion, and Colgate-Palmolive has a market cap of $56.10 billion.

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PG

KMB

CL

Trailing   P/E

17.39

22.68

24.58

Forward   P/E

17.93

17.03

19.03

Profit   Margin

15.61%

8.58%

13.60%

ROE

17.53%

35.62%

110.92%

Operating   Cash Flow

$14.45 Billion

$3.31 Billion

 $3.31 Billion

Dividend   Yield

3.10%

3.10%

2.20%

Short   Position

0.90%

2.10%

1.10%

 

Let’s take a look at some more important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal

The debt-to-equity ratio for Procter & Gamble is close to the industry average of 0.50. It’s also considerably stronger than the debt-to-equity ratios for its peers.

Debt-To-Equity

Cash

Long-Term Debt

PG

0.47

$5.88 Billion

$32.22 Billion

KMB

1.41

$1.11 Billion

$7.03 Billion

CL

2.65

$1.10 Billion

$5.36 Billion

 

T = Technicals Are Strong    

Procter & Gamble hasn’t just been a steady performer over the past three years, but for several decades.

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1 Month

Year-To-Date

1 Year

3 Year

PG

0.10%

16.28%

24.89%

37.65%

KMB

5.20%

24.79%

38.25%

91.25%

CL

3.59%

16.32%

24.09%

56.79%

 

At $77.75, Procter & Gamble is trading below its 50-day SMA, but above its 100-day SMA and 200-day SMA.

50-Day   SMA

77.84

100-Day   SMA

74.83

200-Day   SMA

71.29

 

E = Earnings Have Steady                    

Earnings haven’t been impressive in a growth sense, but they have been impressive in regards to consistency and size. Procter & Gamble is working hard to improve its bottom line. Even if the company isn’t successful at this attempt in the near future, it’s likely to be successful down the road. As far as revenue goes, it has consistently improved over the past three years. Any revenue improvement is a positive considering many companies throughout the broader market suffered revenue declines in 2012.

2008

2009

2010

2011

2012

Revenue   ($)in   billions

81.75

76.69

78.94

81.10

83.68

Diluted   EPS ($)

3.64

4.26

4.11

3.93

3.66

 

When we look at the last quarter on a year-over-year basis, we see improvements in revenue and earnings.

3/2012

6/2012

9/2012

12/2012

3/2013

Revenue   ($)in   billions

20.19

20.21

20.74

22.18

20.60

Diluted   EPS ($)

0.82

1.24

0.96

1.39

0.88

 

Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

While there will be hiccups, this is an industry that always wins over the long haul. One of the biggest threats would be a weakening consumer choosing to go with cheaper generic products. However, there is so much loyalty throughout the industry that there would have to be an economic catastrophe for this to have a significant impact.

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Conclusion

Procter & Gamble has taken a few hits through the years, including the late 1980s, 2000, and 2008, but it always eventually went on to make new highs. Innovation and top-tier management have been the keys to success. And when there are difficult times, the generous yield should help ease the pain for investors.

Procter & Gamble is still a long-term OUTPERFORM.

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Disclosure: All content posted represents my opinion and views and should never be considered professional advice. You should do your own research and consult with a professional financial advisor before making any investment decisions. I do not have a position in this stock. I am currently short technology, financials, the Russell 2000, and the euro.