Proctor & Gamble (PG) Valuation

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Company Profile (obtained from Google Finance): The Procter & Gamble Company is focused on providing branded consumer goods. The Company’s products are sold in over 180 countries around the world primarily through mass merchandisers, grocery stores, membership club stores, drug stores and in high-frequency stores, the neighborhood stores, which serve consumers in developing markets. During the fiscal year ended June 30, 2008 (fiscal 2008), one product category accounted for 10% or more of consolidated net sales. The laundry category constituted approximately 16% of net sales during fiscal 2008. In fiscal 2008, the Company was organized into three Global Business Units: Beauty; Health and Well-Being, and Household Care. The Company had six business segments under United States Generally Accepted Accounting Principles (GAAP): Beauty; Grooming; Health Care; Snacks, Coffee and Pet Care; Fabric Care and Home Care, and Baby Care and Family Care.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 3/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last updated 10/3/09
• MG Value = $107
• MG Opinion = Undervalued
• Value based on 3% Growth = $51
• Value based on 0% Growth = $30
• Market-implied growth rate = 3.80%
• Net Current Asset Value (NCAV) = -$3.08
• Current Ratio = 0.71
• Price to Book Ratio = 2.62

Key Data:

Balance Sheet – 6/30/2009

• Current Assets    $21,905,000,000
• Current Liabilities    $30,901,000,000
• Total Debt    $20,652,000,000
• Total Assets    $134,833,000,000
• Intangible Assets    $32,606,000,000
• Goodwill    $56,512,000,000
• Total Liabilities    $71,734,000,000
• Outstanding Shares    2,917,040,000

Earnings Per Share – Diluted

• 2009 (estimate)    $3.58
• 2008    $4.52
• 2007    $3.04
• 2006    $2.64
• 2005    $2.48
• 2004    $2.15
• 2003    $1.85
• 2002    $1.54
• 2001    $1.03
• 2000    $1.23
• 1999    $1.29
• 1998    $1.28

Earnings Per Share – Modern Graham

• 2009 (estimate)    $3.52
• 2008    $3.32
• 2007    $2.62
• 2006    $2.32
• 2005    $2.04
• 2004    $1.74

Valuation History:

• 10/3/09 – Value $107, Actual Price $56.75, Undervalued & Defensive
• 6/29/09 – Value $105, Actual Price $52.15, Undervalued & Defensive
• 7/29/08 – Value $57, Actual Price $63.95, Overvalued & Defensive
• 3/10/08 – Value $98, Actual Price $65.80, Undervalued & Enterprising