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Value Investing Research Since 2006

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Tuesday, January 16, 2018

Proctor & Gamble Co Valuation – July 2016 $PG


Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – June 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Proctor & Gamble (PG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): The Procter & Gamble Company (P&G) provides consumer packaged goods. The Company operates in five segments under GBUs: Beauty, which offers a range of products ranging from deodorants to cosmetics to skin care; Grooming, which includes blades, razors and electronic hair removal devices, such as electric razors and epilators; Health Care, which includes oral care and personal health care products.; Fabric Care and Home Care, which consists of a range of fabric care products, home care products and batteries, and Baby Feminine and Family Care, which offers diapers, pants, baby wipe, Bounty paper, towel and Charmin toilet paper brands. The Company’s products are sold in over 180 countries and territories. P&G’s customers include mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons distributors, e-commerce and stores.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PG – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $227,770,028,411 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.09 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -7.22% Fail
6. Moderate PEmg Ratio PEmg < 20 24.90 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.11 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.09 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 6.46 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

PG value chart July 2016

EPSmg $3.44
MG Growth Estimate -1.75%
MG Value $17.20
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth $49.95
MG Value based on 0% Growth $29.28
Market Implied Growth Rate 8.20%
Current Price $85.77
% of Intrinsic Value 498.69%

Procter & Gamble Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.9 in 2012 to an estimated $3.44 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.2% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Procter & Gamble Co receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

PG charts July 2016

Net Current Asset Value (NCAV) -$11.99
Graham Number $42.64
PEmg 24.90
Current Ratio 1.09
PB Ratio 4.11
Current Dividend $2.65
Dividend Yield 3.09%
Number of Consecutive Years of Dividend Growth 20


Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2016
Total Current Assets $34,317,000,000
Total Current Liabilities $31,357,000,000
Long-Term Debt $19,134,000,000
Total Assets $127,508,000,000
Intangible Assets $69,308,000,000
Total Liabilities $68,321,000,000
Shares Outstanding (Diluted Average) 2,835,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.70
Jun2015 $2.44
Jun2014 $4.01
Jun2013 $3.86
Jun2012 $3.66
Jun2011 $3.93
Jun2010 $4.11
Jun2009 $4.26
Jun2008 $3.64
Jun2007 $3.04
Jun2006 $2.64
Jun2005 $2.66
Jun2004 $2.32
Jun2003 $1.85
Jun2002 $1.55
Jun2001 $1.04
Jun2000 $1.24
Jun1999 $1.30
Jun1998 $1.28
Jun1997 $1.14
Jun1996 $1.01

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.44
Jun2015 $3.40
Jun2014 $3.90
Jun2013 $3.88
Jun2012 $3.90
Jun2011 $3.95
Jun2010 $3.82
Jun2009 $3.53
Jun2008 $3.06
Jun2007 $2.68
Jun2006 $2.40
Jun2005 $2.15
Jun2004 $1.79
Jun2003 $1.49
Jun2002 $1.30
Jun2001 $1.18
Jun2000 $1.23

Recommended Reading:

Other ModernGraham posts about the company

5 Most Overvalued Dow Components – July 2015
5 Most Overvalued Dow Components – June 2015
5 Most Overvalued Dow Components – May 2015
5 Most Overvalued Dow Components – February 2015
40 Companies in the Spotlight This Week – 2/21/15

Other ModernGraham posts about related companies

International Flavors & Fragrances Inc Valuation – June 2016 $IFF
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Estee Lauder Companies Inc Valuation – May 2016 $EL
Colgate-Palmolive Co Valuation – January 2016 Update $CL
International Flavors & Fragrances Valuation – December 2015 Update $IFF
International Flavors & Fragrances Valuation – December 2015 Update $IFF
The Estee Lauder Company Valuation – October 2015 Update $EL
International Flavors & Fragrances Inc. Analysis – August 2015 Update $IFF
Estee Lauder Companies Analysis – August 2015 Update $EL
International Flavors & Fragrances Inc. Quarterly Valuation – May 2015 $IFF

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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