vitamins/minerals/supplements, and other personal health care products. This segment markets its products under the Always, Crest, Oral-B, and Vicks brand names. The Fabric Care and Home Care segment provides bleach and laundry additives, fabric enhancers, and laundry detergents; air care, dish care, and surface care products; batteries; pet care products; and professional products. This segment sells its products under the Ace, Ariel, Dawn, Downy, Duracell, Febreze, Gain, Iams, and Tide brand names. The Baby Care and Family Care segment offers baby wipes, diapers, pants, paper towels, tissues, and toilet papers under the Bounty, Charmin, and Pampers brand names. The company markets its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, high-frequency stores, and e-commerce in approximately 180 countries worldwide. The Procter & Gamble Company was founded in 1837 and is based in Cincinnati, Ohio.
Analysis
Current Yield and Dividend Growth
Procter & Gamble currently pays a dividend of $0.602 per quarter
for a $2.41 annual dividend. At the close of market on Monday,
December 24th PG’s price per share was $81.31. This gives the stock
a current dividend yield of 2.96%. Normally I look for a dividend
yield of at least 3%, so I wouldn´t be satisfied with this dividend
yield from PG. In 2003, Procter & Gamble paid an annual dividend
amount of $0.93 per share. The dividend trend has been up each year
as it now pays $2.41 annually per share. This gives PG a 10 year
annual compound dividend growth rate of 10.08%. Procter & Gamble
has increased its dividend for more than five decades. Procter &
Gamble´s dividend growth rate has been good on last 3, 5 and 10
years, 8.28%, 9.55% and 10.80%. 1 year growth rate is fair 7.04%.
Procter & Gamble normally pay dividend in February, May, August
and November.
EPS Growth
Procter & Gamble's EPS has grown an average of
7.89% over the past 10 years, 1.48% in the past five years. The past
three years, EPS has grown 3.02%, and in the past year growth has
been nice 23.72%. Procter & Gamble's EPS of development in last 5
and 3 years don´t seems to be very good. Analyst estimates for 5
years earnigs growth rate per annum are 8.33%
(http://finance.yahoo.com/q/ae?s=PG+Analyst+Estimates)
If that will happen, PG will be back on track to grow up it´s EPS.
Net Income
Procter & Gamble's net income has increased by an average of
8.11% over the past 10 years, went down -1.30% in the past five
years. In last three years net income went down -3.88% and last year
grow up 5,17%. Net income trend looks similar to the EPS trend.
Revenue Growth
Procter & Gamble's revenue has increased 6.85% over the past 10
years, 0.16% in the last 5 years. In the last 3 years, profits have
grown 2.16%, last year revenue grow up by 0.58%.
Outstanding Shares
Procter & Gamble`s amount of shares has go down nicely, except on
year 2005 those increased, but after that it has continue to go down.
That I like, because less shares outstanding, my shares are giving me
a larger portion of the earnings.
Payout Ratio
Procter & Gamble's dividend payout ratio has been in the past 10
years on average 48.25%. This means that Procter & Gamble will
distribute about a half of the profits to shareholders, and put rest
of the new investment, as well as increases the value of shares
through share repurchases. It suits me very well.
ROE
Procter & Gamble's ROE has been around 23% over the past 10
years, which are okay for me.
Current Ratio
Current ratio measures the company's ability to meet short-term
obligations. Procter & Gamble has current ratio 0.80 at the end
of 2012. This means that the funds will be able to cover 80% of
current liability obligations. I usually like the current ratio is
greater than 1, so Procter & Gamble don´t look good in this
case.
Net Profit to long term debt
This number tells me how many years it will take to pay off the
current long term debt of the company by using all net profit into
it. I want this ratio to be less than 5, because the company is able
to pay for all long-term debt from less than five years and on my
opinion then company don´t have too much debt. Procter &
Gamble`s long term debt has been clearly under 5 times net profit on
last 10 years, In the last 10-year average is 2.08, last year it was
1.69.
Value
To found out share fair value I mainly use six
different methods.
(http://www.passive-income-pursuit.com/search/label/stock%20valuation%20method).
Average P/E Ratio
Procter & Gamble`s current P/E are 20.66, which are over to it`s
historical 5 years average high (17.26) but lower as 10 years average
high (23.59). By calculating using estimated EPS 4.29 for year 2014
and the average 5-year low P/E ratio (12.87) shares fair value will
be $55.22. Using the 10-year average low P/E ratio (17.10), fair
value will be $73.35. Calculating with 5 year average P/E ratio
(15.07), fair value will be $64.63, with 10 year average P/E ratio
(20.34) fair value will be $87.27.
Average Dividend Yield
Procter & Gamble`s current annual dividend are $2.41. At the
close of market on Monday, December 24th PG’s price per share was
$81.31. This gives the stock a current dividend yield of 2.96%.
Average 5 years high dividend yields has been 3.95% and average 10
years high dividend yields has been 3.00%. Those dividend yields
gives share fair value $61.03 for 5 and $80.26 for 10 years.
Calculating with 5 year average yield 3.32%, fair value will be
$72.50, with 10 year average yield 2.53%, fair value will be $95.18.
Average P/S Ratio
Procter & Gamble`s current P/S ratio are 2.79 with revenue
estimates for year 2014 (85.98B). Average 5 years low P/S ratio are
1.88 and average 10 years low P/S ratio are 2.33. By calculating
using estimated revenue for year 2014 and the average 5 years low P/S
ratio fair value will be $55.08. Using the 10 years average low P/S
ratio, fair value will be $68.51. Calculating with 5 year average P/S
ratio (2.20), fair value will be $64.73, with 10 year average P/S
ratio (2.78) fair value will be $81.50.
Discounted Cash Flow
Analyst estimates for 5 years earnings growth rate per annum are
8.33%. I will use on my calculation 66% of that, which are 5.5%. Then
I assume that continue growth after 5 years will be 3%. I use
discount rate 10% and EPS $3.94. Total I calculate for next 30 years.
That will give me share fair value $55.94.
Discount Rates | 8% | 9% | 10% | 11% | 12% |
NPV of Future EPS | $69.51 | $62.15 | $55.94 | $50.67 | $46.17 |
Dividend Discount Model
Procter & Gamble`s current annual dividend are $2.41. I assume
that Procter & Gamble will be able to grow dividends for the next
5 years at the lowest of the 1, 3, 5, or 10 year growth rates or 15%.
In this case that would be 7.04%. Then I assume that after 5 years
grow rate will be 5%. To calculate the value I used a discount rate
of 10%. Total I calculate again for next 30 years. That will give me
share fair value $72.70.
Discount Rate | 8% | 9% | 10% | 11% | 12% |
NPV of Future Dividends | $98.83 | $84.42 | $72.70 | $63.11 | $55.20 |
Future Price
Procter & Gamble has EPS 3.94 (ttm). When I calculate Procter &
Gamble`s future price with analyst estimate for 5 years EPS growth
(8.33)% and using low P/E ratio last 5 years, I came for price
$75.69. That would give about 8% downside for PG´s current price.
Conclusion
Procter & Gamble are a great company with 57 years continuing
dividend increase and I would like to have some shares of it in my
portfolio. Based on my analysis, I think Procter & Gamble are
currently a bit overvalued, and I am not prepared at this time
to invest in it. If the price would fall under $75, then I might be
interested on it.
Disclosure: I do not own any shares of PG.
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