PG Stock Overview
The Procter & Gamble Company provides branded consumer packaged goods worldwide.
The Procter & Gamble Company Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$130.10|
|52 Week High||US$165.35|
|52 Week Low||US$126.21|
|1 Month Change||-5.15%|
|3 Month Change||-10.92%|
|1 Year Change||-6.63%|
|3 Year Change||7.58%|
|5 Year Change||42.00%|
|Change since IPO||1,376.31%|
Recent News & Updates
The Procter & Gamble Company (NYSE:PG) Shares Could Be 42% Below Their Intrinsic Value Estimate
Today we'll do a simple run through of a valuation method used to estimate the attractiveness of The Procter & Gamble...
Procter & Gamble: Defensive, Other Than The Yield
Summary Procter & Gamble is a consumer staple company with a solid track record in recent years. Procter has seen softer growth this year, but the share price declines are mostly the result of higher interest rates. I like the long-term potential here, as higher rates have hurt quite a bit, as has been the case with many dividend names these days. In April 2020 I called Procter & Gamble (PG) a resilient play in the storm which was out there at the time of course, with the pandemic in its early innings. The company was benefiting from its defensive positioning, selling everyday essentials, as it benefited from a near term hoarding effect as well. Despite the strong performance, I thought the valuations were a bit rich, despite a plunge in interest rates and the fact that opportunities wee arising left and right. A Solid Play In April 2020, Procter just posted its third quarter results with volumes up 6%, as adverse currency moves made that total revenues were up a percent less to $17.2 billion. Reported earnings came in at $2.9 billion, up in line with topline sales growth as some modest reduction in the share count allowed for a 10% increase in adjusted earnings to $1.17 per share. At the time Procter was a $125 stock which was set to earn $5 per share that year, translating into a 25 times earnings multiple. Net debt was posted at $20 billion and change, just surpassing $17-$18 billion in annual EBITDA, giving the company plenty of firepower with no leverage concerns seen in an uncertain period of time, as the overall valuations were quite demanding. So despite a solid performance in an uncertain period of time, and a strong balance sheet, it was the overall valuation which was too high for me to see appeal and to get involved with Procter. Performing, And Than Not After trading at $125 in the spring of 2020, shares have gradually moved higher and hit a high at $165 per share at the start of 2022. What followed has been a big retreat to $125 again, mostly driven by the impact of a strong dollar and rising interest rates. As it turned out, Procter posted its fiscal 2020 sales at $71.0 billion on which core earnings of $5.12 per share reported in the summer of that year. The year which followed was another solid year, with revenues up 7% to $76.1 billion, as core earnings per share were up 11% to $5.66 per share, the result of higher prices, volumes and a relative weaker dollar (that year). Net debt came in at $21.7 billion, with EBITDA coming in at nearly the same number. The fiscal year 2022, as released in July, saw a bit more modest growth with sales up 5% to $80.2 billion, yet core earnings per share rose just 3% to $5.81 per share. Slower earnings growth is due to the nature of sales growth, as Procter saw volumes come down 1%, while prices rose 8% and currency moves subtracted some 4 points from reported sales growth. To ignite some earnings per share growth, Procter has continued to pursue share buybacks as this has resulted in a modest built-up in net debt, up to $24.2 billion. Nonetheless, this remains a very manageable amount as EBITDA came in at $20.8 billion on a reported basis last fiscal year. The 2023 guidance is a bit mixed. Organic sales are seen up 3-5%, but this is likely largely driven by pricing, although the contribution of price and volumes has not been quantified. Currency headwinds are expected to cut sales growth by three points, leaving just a point or two in expected revenue growth. Despite an anticipated $3.3 billion, or $1.33 per share in headwind from inflation in general, in specific freight expenses and currency moves, the company sees adjusted earnings up between one and four points. With earnings set to come in a few pennies short of $6 per share in the current fiscal year, to which there are clearly some risks, it is needless to say that the earnings multiple has fallen to 21 times earnings. This makes that a 4% earnings yield at 25 times earnings has risen to nearly 5%, likely the result of higher interest rates ever since. Leverage remains very modest, yet the pace of organic growth of Procter is lagging a bit, as the company has seen strong momentum in recent years, after Procter has been regarded as a solid operator in the last couple of years. And Now? With shares coming under pressure, the magical 3% dividend yield comes in sight as the annual dividend payout now comes in at $3.52 per share, although the magic of this 3% number is less pronounced as has been the case in more recent times. This of course comes as interest rates have moved up so violently.
Procter & Gamble Is Likely To Revisit 2022 Lows
Summary P&G is trading below key resistance levels. EPS revisions continue strongly downward. The stock is overpriced given its margin headwinds. Consumer staples stocks were the place to be for the early part of this year. After growth stocks began to unravel in early 2022, more defensive names reigned. That is just about always the case during periods of market turmoil, and 2022 proved to be no different. However, it is my view that we are nearing the end of this bear market, and until I see evidence to the contrary, I'm continuing to position that way. That means I don't see a lot of value in owning defensive names this late in the cycle, as I believe the best way to take advantage of the next bull run is with growth stocks. That leaves perennial dividend favorites like Procter & Gamble (PG) in a place where I don't think they should feature heavily in most investors' portfolios. In this article, we'll look at some of the struggles and successes of P&G, but ultimately, I think the stock is unattractively priced and faces too many headwinds to want to own right now. That was virtually the same the last time I covered P&G, and the stock is roughly flat in the past year and a half. That's better than the S&P over that time, to be fair, but given the outlook for margins and the current valuation, I think P&G has a downward bias for the foreseeable future, especially relative to the broader market. Has Wall Street abandoned P&G? While Wall Street may not have fully abandoned P&G, the below does not have a good look. You'd think a prolonged period of market weakness - like what we've had for 2022 - would produce strong outperformance in consumer staples companies. That simply hasn't been the case, and it's largely because of input cost inflation. More on that below, but the chart looks like a stock that nobody wants to own. StockCharts There are two levels of fairly stout resistance overhead, one at $138 and the next at $141, and given the way this stock has been trading, I think taking those out anytime soon is a tall order. The momentum indicators are bouncing, but quite feebly, and the stock is seeing lower peaks on bounce attempts. This simply does not have a good look, and this is not a chart I would attempt to trade on the long side. One positive note is that P&G is outperforming its peers, as seen in the bottom two panels, but its peer group is weak against the S&P 500. So while P&G is slightly outperforming, it's doing so in a weak group. I won't belabor the point on the chart here, but the bottom line is that the bias for this stock - in my view - is lower until further notice. What about the fundamentals? We're all fully aware of the inflation situation because you cannot get away from commentary and data on it. The situation is unique, given we previously had years and years of persistently low inflation, followed by a sudden skyrocketing of higher prices. That has impacted different companies in different ways, but for companies that make and ship things, it's been doubly tough. P&G certainly fits that bill, but as we'll see, it's seemingly weathering the storm fairly well. Below we have guidance for this fiscal year from management, with the lower bound in blue, the upper bound in black, and the analyst consensus in green. TIKR We can see analysts simply went right in the middle of the range provided by management, but to be fair, P&G's revenue is usually quite easy to forecast given its steady demand. That gives us a good baseline for this year to then look at the out years from a demand perspective. TIKR Consensus estimates for the next few years are for ~4% average annual growth, which again is pretty typical for P&G. One of the things income investors like about P&G is its predictability, and that's one of the things that has afforded it the ability to raise its dividend for more than six decades consecutively. Where things get interesting is when we look at margins, which we have below on a trailing twelve months basis for the past few years. We have gross margins in blue, SG&A costs in green, and operating margins in black. These are the primary components of a company's profitability and give us good insight into whether management is able to effectively price their goods and manage expenses. TIKR Gross margins have been in decline for several quarters, and it would appear that, despite pricing actions being taken, it may be some time before that gets better. Indeed, with freight and input costs - two huge line items for a manufacturer of consumer staples - still very elevated, P&G looks set to struggle with gross margins despite sizable pricing increases. The good news is that P&G owns some of the most recognized and purchased brands in the world, so it's able to push pricing increases through. However, there's a point that will stop working. On the plus side, the company has done a nice job of controlling expenses. We can see SG&A costs have declined from almost 27% of revenue in 2021 to just over 24% on a TTM basis last quarter. That's quite significant, and it has kept operating profits from massive declines due to gross margin contraction. The management team is doing what is necessary to preserve profits, but just like pricing increases, these things have endpoints where more cuts simply aren't an option. Still, I'm impressed by expense management in a difficult environment. If we add these things together - demand via revenue projections, and profitability via margins - we get the below, which is the EPS revision schedule for P&G from its extensive analyst community. Seeking Alpha Unfortunately, this isn't pretty. There have been numerous downward revisions to earnings estimates not only for this year but out years as well. This is the impact of lower margins, because as we saw, revenue is pretty steady with mid-single digit gains each year. This chart is a function of margin headwinds, primarily, and it's not a good story. If you wonder why the stock is being sold and the price chart looks the way it does, I'd point you here. It's very difficult for any stock with persistently downward revisions in earnings to rally and P&G is no exception. Let's value this thing We'll start with the forward P/E ratio for P&G for the past five years to give us some historical context on today's valuation. We can see during this period the stock has ranged between 16X and 27X earnings, but the former was for a brief period almost five years ago. More recently, the stock has been in a tight range of 21X to 25X, for the most part.
Procter & Gamble Is No Gamble
The Consumer Staples sector is one of only three sectors (including Energy & Utilities) that is up over the past year. Procter & Gamble is a leading consumer products company and offers its products in over 180 countries worldwide. The stock is up 3.3% over the past year, yields 2.4%, and is down 10% from its 52-week high. P&G has a very diversified and popular portfolio of household and personal care products, yet faces some significant headwinds going forward. Procter & Gamble (PG) is one of those rather boring (but very profitable ...) consumer staple stocks that typically outperform in a weak market - and that has certainly been the case again this year. The company has a very diverse product line across multiple consumer categories and across six different global regions. P&G generates the majority of its revenue (~56%) overseas. While the company is strategically well-positioned for current macro-environment, it still faces some significant challenges going forward. Today, I'll take a close look at the company's recent performance to see if it currently offers investors a good entry point. Investment Thesis As mentioned in the bullets, the Consumer Staples sector is one of only three sectors in the green over the past year and during the 2022 bear market: Seeking Alpha Homepage That being the case, many investors like to allocate some capital to the Consumer Staples sector to act as a ballast or "shelter from the storm" in order to smooth out portfolio returns during down markets. Yet, over the longer term (3 years in the graphic above), it is clear that there are better performing sectors, which is - of course - why I continue to advise investors to build and maintain a well-diversified portfolio and to stay in the market through its up-n-down cycles. Procter & Gamble has a wide assortment of very popular consumer products. These include: Head & Shoulders, Pantene, Olay, Old Spice, Secret, Braun, Gillette, Crest, Oral-B, Downy, Vicks, Cascade, Dawn, Febreze, Pampers, Luvs, Tampax, Bounty, and Charmin - among many others. P&G is a "dividend aristocrat" and has raised its dividend for 66 consecutive years. P&G Today, I'll take a fresh look at Procter & Gamble to see if it may offer investors a good entry point - or if they should consider adding shares to an existing position. Q4 & FY2022 Earnings P&G announced its Q4 FY22 EPS report at the end of July and it was generally considered to be a miss on the top (by $0.02/share) and a beat on the bottom line (by $110 million). Q4 revenue was up only 3% yoy as a result of tough year-over-year comparisons and a slowing global economy. Organic sales were up 7% during the quarter. During Q4, net earnings generated by the Beauty and Grooming Segments were down significantly (-18% and 16%, respectively) as lower volume (heavily impacted by China lockdowns) and commodity prices hit margin. Shaving products were down 30% in China and were negatively impacted by both manufacturing shutdowns and lower consumer demand. On the upside, net earnings for the Fabric & Home Segment were up 9% as P&G continues to gain market share with innovative products - particularly its laundry "unit-dose" and fabric enhancer beads offerings. Notably, P&G continued to generate strong free cash flow during the quarter: $3.0 billion. For the year, P&G generated $13.8 billion in free cash flow or an estimated $5.48/share based on the 2.52 billion shares outstanding at the end of FY22. That bodes well for shareholders considering the current annual dividend is only $3.65/share. For the year, EPS growth was only 3% and was a significant deceleration as compared to recent - and covid-19 impacted - years as margin contracted: P&G Source: Q4 & FY22 Presentation Note that gross margin was down 380 basis points, a big move for a company like P&G. Going Forward P&G faces a number of headwinds going forward: Continued tough yoy comparisons as market growth have decelerated. Being a global company with a relatively strong U.S. dollar, P&G facing significant foreign exchange headwinds. Commodity prices and freight costs will continue to be a drag on margin. Covid-19, geopolitical risks, and high inflation and rising interest rates could all negatively affect product costs as well as consumer demand. Acknowledging all those challenges, it is not surprising that management's FY23 guidance was tepid at best: Revenue growth of 0-3% (that includes a negative 3% FX headwind). EPS growth of flat to +4% as the company expects various headwinds to account for a whopping $1.33/share negative impact (~23% as compared to FY22). Share repurchases of $6-$8 billion (versus $10 billion in FY2022). Risks In addition to the risks and headwinds already discussed, note that P&G hedges interest rate & FX risks, but not commodities. That being the case, there could be considerable upside in FY23 if commodity prices were to come down. I say that because P&G is known to operate one of the top (if not the top) supply-chain management teams in the business. In addition, P&G has the ability to raise prices in order to offset commodity price increases, supply chain, and labor shortages. In addition, P&G top-tier branding leaves it exposed to financially stressed consumers who would trade down to private label brands in order to save money. At the end of FY22, P&G had $7.2 billion in cash & cash equivalents and $22.85 billion in long-term debt. My opinion is that P&G should spend a bit less on share repurchases and pay down more of its debt load. That would increase bottom line EPS and, eventually, free up more cash for dividends directly to shareholders.
|PG||US Household Products||US Market|
Return vs Industry: PG exceeded the US Household Products industry which returned -9.2% over the past year.
Return vs Market: PG exceeded the US Market which returned -20% over the past year.
|PG Average Weekly Movement||3.1%|
|Household Products Industry Average Movement||4.1%|
|Market Average Movement||6.9%|
|10% most volatile stocks in US Market||15.5%|
|10% least volatile stocks in US Market||2.8%|
Stable Share Price: PG is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 3% a week.
Volatility Over Time: PG's weekly volatility (3%) has been stable over the past year.
About the Company
The Procter & Gamble Company provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. The Beauty segment offers conditioners, shampoos, styling aids, and treatments under the Head & Shoulders, Herbal Essences, Pantene, and Rejoice brands; and antiperspirants and deodorants, personal cleansing, and skin care products under the Olay, Old Spice, Safeguard, Secret, and SK-II brands.
The Procter & Gamble Company Fundamentals Summary
|PG fundamental statistics|
Is PG overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|PG income statement (TTM)|
|Cost of Revenue||US$41.98b|
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
Oct 19, 2022
|Earnings per share (EPS)||6.06|
|Net Profit Margin||18.03%|
How did PG perform over the long term?See historical performance and comparison