Should You Hold Procter & Gamble (PG)?

Consumer staple companies aren’t sexy. Yet, these are mainstays in nearly every retirement portfolio.

Procter & Gamble’s (PG) latest earnings report has financial pros on the fence, according to our TrackStar data.

While they made it the highest search amongst household staple goods companies, there weren’t that many page views.

Maybe that’s because the stock trades at 26x earnings and 20x operating cash flow. That’s pretty rich when Tesla trades at 33x and 34x, respectively, with those same metrics.

However, as we’ll show you in the comparison below, many consumer defensive names are trading at a premium.

Procter & Gamble’s Business

Based out of Cincinnati, Ohio, Procter & Gamble is the largest consumer goods company in the U.S. by volume and dollar amount.

With more than 65 brands, the company’s products cover more than 10 categories in home and personal care in more than 70 countries.

Management segments the business into five categories:

• Beauty (17.7% of sales): This segment provides consumers with a range of skin care, hair care, and grooming products designed to enhance natural beautyand includes names like Olay, Pantene, and Head & Shoulders.
• Grooming (7.6% of sales) :Featuring leading names such as Gillette, Venus, and Braun, this category offers precision shaving and personal care items that cater to the grooming needs of both men and women worldwide.
• Health Care (14.3% of sales): With trusted brands like Oral-B, Crest, and Vicks, the Health Care segment delivers oral care products and therapeutic health solutions that contribute to the overall well-being of consumers.
• Fabric & Home Care (35.8% of sales): Dominated by powerhouse brands Tide, Ariel, and Febreze, this segment encompasses laundry detergents, fabric enhancers, and household cleaners, playing an essential role in daily home maintenance and care.
• Baby, Feminine & Family Care (24.6% of sales): Includes essential products from Pampers, Always, and Bounty, offering comprehensive care solutions for babies, feminine hygiene, and broader family needs, ensuring comfort, protection, and convenience.

Source: P&G Q3 Investor Presentation

The company’s latest earnings announcement highlighted decent growth numbers.

Organic sales rose while margins expanded as commodity prices retreated.

Management hopes to build upon this with a mix of volume improvements and price hikes.

Financials

Source: Stock Analysis

P&G isn’t a big growth company. But they generate a lot of cash consistently.

Currently, the free cash flow margin runs a whopping 19.2%, giving management ample room to pay its 2.5% dividend and do about half that in share buybacks.

Total debt has remained steady at $32.0 billion for the better part of the decade.

Valuation

Source: Seeking Alpha

P&G trades at a lofty valuation. But so do many of its peers.

For example, Kimberly Clark (KMB) sits at 25x trailing 12-month earnings, though its far cheaper at 12.2x operating cash flow.

Unilever (UL), more global goods company, trades at 17x earnings and 12x cash, far cheaper than P&G.

However, Church & Dwight (CHD), the markers of Arm & Hammer, trades at a lofty 35x earnings and 25x operating cash flow.

Growth

Source: Seeking Alpha

Coty (COTY) is the exception in the group when it comes to revenue growth.

The rest all play in the single-digit range in terms of YoY performance.

However, P&G and Unilever have both done well in improving earnings over the last three years. But Coty is looking to dominate in 2024 with a forecasted 144% EPS growth.

Profitability

Source: Seeking Alpha

P&G runs a well-oiled business with gross margins second only to Coty.

Its EBIT and net income margin dominate its peers.

Unsurprisingly, it boasts a high return on equity, assets, and total capital.

Our Opinion 6/10

P&G is a great company. But we’re not a big fan of the value here.

Stocks like these are best when you get them during market swoons and downturns because the upside is limited.

We’d be interested in P&G, but not until it was down closer to $100 per share.

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