PG Stock Valuation

Procter & Gamble shareholders enjoyed a 20.0% total return in calendar year 2021 and the third 20% plus return since 2012. Shareholders suffered only one calendar year stock price decline over the past ten years, and that was in 2015.

Significant foreign exchange conversion woes and a volume growth malaise were the culprits then and both seem to have been effectively addressed. The company has paid shareholders a dividend for 131 consecutive years and has raised its dividend annually year for the past 65 consecutive years.

P&G has posted an impressive string of earnings consistently meeting or beating consensus earnings estimates for at least the past six consecutive quarters. Continuing to surpass consensus forecasts may get tougher. The company expects after-tax input costs to increase by $2.3 billion in fiscal 2022 versus $325 million in fiscal 2021 according to CFRA research. To combat rising costs, the company implemented price increases across many of their products this past September.

Investors have benefited in recent years from rising PG stock price valuations as well. On December 31, 2021, Procter & Gamble’s stock price closed at $163.68.  Applying $5.64 per share, their earnings per share over the trailing four quarters, gives the stock a trailing price-to-earnings (P/E) valuation of 29.

Excluding 2019 when P&G earnings included a large write down on their Gillette business, the year-end P/E at 29x is the highest year-end trailing P/E in the past ten years. According to Morningstar analytics, the lowest year-end P/E over the past ten years was 17.4x in 2012.

Investors have historically given PG a higher valuation than some peers due to their relative consistency and overall market valuations are higher today than on average too. However, caution may be prudent due to a combination of historically high valuations and significant cost headwinds the company is expecting.

 

 

Disclaimer
This material is provided by Schmitt Wealth Advisers for informational purposes only. Schmitt Wealth Advisers does not provide tax or legal advice, and nothing herein should be construed as such. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy, or investment product.  Opinions expressed by Schmitt Wealth Advisers are based on economic or market conditions at the time this material was written.  Economies and markets fluctuate.  Actual economic or market events may turn out differently than anticipated.  Facts presented have been obtained from publicly available sources (unless otherwise noted) and are believed to be reliable.  Schmitt Wealth Advisers, however, cannot guarantee the accuracy or completeness of such information.  Past performance may not be indicative of future results.

More Posts Like This

  • Investing & Recessions

    Our Outlook

    The problem with recessions is that earnings decline, and P/E multiples decline both at the same time. When these two metrics decline at about the same time, a significant market decline (drawdown) typically occurs. In the post WWII era, the worst drawdown occurred between December 2007 and June 2009 when the S&P 500 declined -57%. […]

  • Recession Signal?

    Our Outlook

    Over the past several decades, one of the most reliable economic indicators has been the shape of the US Treasury yield curve.  The yield curve is simply a graph of current yields on treasury bonds from the three-month T-Bill to the 30-year treasury bond. The normal shape of the yield curve from left to right […]