Procter & Gamble (PG) operates across ten different segments of the consumer discretionary industry throughout the world. It manufactures household brands such as Bounty, Oral B, Olay, Crest, Gillette, Tide, and Aways.
The company markets and manufactures so many products across many categories of the customer discretionary industry that it manufacture over half of the disposable products in my bathroom, cleaning supply closet, and laundry room as I write this article.
After reviewing Procter & Gamble stock’s intrinsic value, listening to the new CEO’s plans for the company during the Morgan Stanley Virtual Global Consumer & Retail Conference, and reading what the Wall Street analysts and bloggers are saying, I am neutral on this stock, in terms of value, because I think it is fairly valued. I do believe this is an attractive stock for dividend investors.
P&G’s Strategy Going Forward
What I find exciting about P&G is its ability to strategically alter its focus every five to ten years. This has enabled it to lead the consumer discretionary industry and drive value to shareholders for many years. This can be seen in 1999 when A.G. Lafley, before he became CEO, led the beauty business by implementing its “prem-tail” strategy to modernize and bring Oil of Olay into the 21st century as the revamped Olay brand.
It can be seen now when Jon Moeller, who was made CEO on November 1, 2021, discusses how the company is handling increased competition at the lower end of its pricing ladder and rising labor and supply chain costs across product categories.
His strategy for the company is to focus on making a superior product, making their products sustainably—with less plastic and packaging, all while increasing efficiency and decreasing the number of touchpoints in the chain of command.
This has allowed P&G to reinvent its management style while handling all the new issues a global multinational company must navigate during the COVID-19 pandemic.
What I like about the current management team’s strategy is its simplicity to understand. It will create value for employees, retail partners, and long-term shareholders once it has been completed.
This will allow the company to maintain its free cash flow, dividend payouts, and share price.
Recent Results
P&G’s stock has been trading between $121.54 and $164.98 in the past 52 weeks. In other words, the stock is currently trading near its 52-week high.
P&G brought in revenues of $77.45 billion over the last twelve months with a net income of $14.14 billion.
The company has reported first-quarter 2022 earnings of $1.61 per share, beating analyst estimates of $1.59 per share. It has also reported $5.66 in earnings per share for 2021, beating analyst estimates of $5.20 for 2021.
Dividend
It is also expected to declare a dividend payable around January 20, 2022, of $0.87. This would equal an annualized dividend yield of 2.1%. PG has increased its dividend every year for the past 65 years. It is again expected to increase its dividend after the January 20 dividend declaration. The dividend growth rate has also increased from 4% to 10% over the past five years.
If the growth rate is maintained at 10%, this will be one of the rare dividend-paying stocks where the growth rate of the dividend is outpacing inflation, meaning investors are gaining real purchasing power. Most investments lose value during high inflation, and P&G has been an exception.
The company shows strength on its income statement with high single-digit growth in top-line and bottom-line revenues. It offers a bit of weakness on its balance sheet, though. The company has a current ratio of 0.67. This means that it has two-thirds of the cash and other current assets it needs on hand to pay its bills over the next year.
When I calculated the stock’s intrinsic value by modeling discounted cash flows, I pegged it at $140.58.
Can the Stock Go Higher?
P&G has done a great job creating value over the past 184 years. I feel the stock has reached its peak, though. I would not buy this stock expecting a significant increase in stock price. I would buy it for the very consistent and consistently growing dividend.
Wall Street’s Take
Seven Wall Street analysts currently cover Procter and have issued 12-month estimates for the price. Of the seven analysts, four rate the stock as a Buy, and three rate it a Hold, giving it a Moderate Buy consensus rating. The average Procter & Gamble price target of $155.71 implies 3% downside potential.
Positive Blogger Sentiment
TipRanks.com shows that of the 48 bloggers that have blogged about Procter & Gamble stock, 89% of them are bullish. The sector average is approximately 72% are bullish on the consumer goods sector in the last three months.
Conclusion
Based on the intrinsic value, the Wall Street estimates, and the blogger estimates, I am neutral on P&G. P&G has done a great job transforming itself to compete in the 21st century. I think this is an outstanding dividend stock for income investors. However, I would not expect the price to go much higher in the next 12 to 24 months.
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Disclosure: At the time of publication, Tim O’Rourke did not have a position in any of the securities mentioned in this article.
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