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 segmentNegatives:
Weak guidance Foreign currency headwinds Weakness in Beauty segment (increased competition) Increased marketing costsIt 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.
| 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.
| 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.
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.
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