An Investment to Change the Future
Dhara is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Since 1837, Procter & Gamble Company (NYSE: PG) has touched and improved the lives of millions across the globe and has a strong market share worldwide. PG has a portfolio of trusted quality brands with its top 25 brands generating annual revenue of $1 billion each. The company has not only satisfied its consumers over the years, but also its investors.
Rise of the fall
In recent years, the world's largest brand of consumer goods has lost business to its competitors as it grew too fast overseas and kept prices high. On one hand where competitors lowered prices, PG having faith in its strong consumer base stuck to its decision of skimming the price policy. As a result, PG lost market share in more than half of the categories in which it deals.
In February, 2012 PG launched a plan to implement cost-cutting measures. Their main focus was on rolling out new products, focusing on profitable areas and cutting jobs. The strategy seems to have worked for the company.
Let’s look at some numbers
Shares hit a new 52-week high of $73.25 after reporting their fiscal second quarter results. The company earned $4.06 billion ($1.39 per share), an increase from $1.69 billion ($0.57 per share) compared to the same quarter last year showing a 12% increase in earnings per share.
The results beat analysts's expectations of $1.11 per share on $21.86 billion revenue. The company looks fairly valued with a forward PE ratio of 17.04, a PEG of 2.36, and a price to book ratio of 3.02.
PG has a decent dividend yield of 3% and over the years it has increased its dividends. It is believed that the company can maintain the current dividend.
Johnson and Johnson (NYSE: JNJ) being a competitor to PG also engages in the sale of various products in the healthcare field worldwide. The company’s latest earnings guidance of $5.35 to $5.45 per share for 2013 is below analysts' expectations of $5.49 per share. Also JNJ has been facing litigation issues involving its Gynecare Prolift implantation device. Massive product recalls have been made in the recent past over quality control issues faced by a number of patients using their device. This, combined with earnings below expectations, puts Johnson & Johnson on the hold list.
Kimberly-Clark Corporation (NYSE: KMB) engages in manufacturing and marketing health care products worldwide. It is a huge competitor to PG not only in terms of its consumers but also investors. Kimberly-Clark reported Q4 earnings per share of $1.37, which beat estimates by $0.02. Revenue of $5.3 billion beat estimates by $110 million. The company beats its earnings estimates for all four quarters of 2012. The company is fairly valued with a forward PE ratio of 14.56 and a PEG ratio of 2.13. KMB is expected to grow earnings annually at 7.25% for the next five years.
Benefits in the near future
Based on better-than-expected results for the first half of the year, PG shares can be rated as a buy. Due to productivity gains and cost savings, PG has delivered healthy results in the last couple of quarters. It expects fiscal 2013 core earnings of $3.97 to $4.07 per share on revenue growth of 1% to 2%. Analysts expect earnings of $3.97 per share and it's not a very high expectation from PG. As seen over the last decade, the company has increased its book value per share from $5 to its current level of about $24. All in all, we can say that PG is a great dividend paying stock that can beat the market and change the future.
dharathakkar has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson, Kimberly-Clark, and Procter & Gamble. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!