Unilever vs Procter & Gamble - Scorecard

By Chad Henage - April 19, 2012 | Tickers: PG, UL | 0 Comments

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When it comes to buying what you know, I'll bet that Procter & Gamble (NYSE: PG) or Unilever (NYSE: UL) makes something you use every day. With brands like Dove, Vaseline, Pond's, Hellman's, Slim Fast, Tide, Gillette, Crest, Iams, and others you would be hard pressed to not find at least one product of these two companies in your house. Since most of their brands are recession proof, the stocks tend to hold up fairly well if there is trouble in the market. Knowing that one of these companies can give you some safety even if the market is going down, which one is the better pick? Let's compare the two and see which company seems to be the better opportunity today. 

Comparing PEG ratios, Procter & Gamble looks like the better value. Looking at the two from a historical P/E perspective yields nearly the same result. Procter & Gamble sells for 22% below its 5 year highest P/E. Unilever sells for 21.85% of its 5 year highest P/E. There isn't much difference between the two, but with the lower PEG and slightly lower P/E versus its historical high P/E, Procter & Gamble gets the nod. (Procter & Gamble – 2, Unilever – 1)

Since the P/E ratio is based on earnings, we need to know if the companies are consistent meeting earnings estimates. When it comes to performance versus analyst estimates, this one is not even close, Procter & Gamble simply does it better:

Given that Unilever has missed in 3 of the last 4 quarters and is missing estimates by over 15%, it seems future earnings growth should be taken with a grain of salt. (Procter & Gamble – 2, Unilever – 1)

With the difficult environment of the U.S. economy in the last few years, it benefits both companies that they get a large part of their revenue from overseas. This partially explains how both companies were able to grow earnings in the last five years. Procter & Gamble shows prior earnings growth of 4.33%, and Unilever shows earnings growth of 2.49%. While neither company's prior growth is tremendous, it's impressive considering the difficulties in two of their main markets, the U.S. and Europe. However, with the higher growth rate, Procter & Gamble executed better and thus wins this category. (Procter & Gamble – 2, Unilever – 1)

Cash flow is a good indicator of what a company really has to return to its shareholders. Earnings per share can be manipulated, but cash flow is harder to fool with. In the last year, Procter & Gamble generated about $0.071 of free cash flow per $1 of assets. By comparison, Unilever actually generated more by earning $0.16 of free cash flow per $1 of assets. Two categories that led to Unilever's outperformance were personal care and home care. The difference is clear, in both personal care and home care Unilever saw growth of over 8% last year. Procter & Gamble in these two categories saw growth of 1% and 5% respectively. (Procter & Gamble – 1, Unilever – 2)

When it comes to yield and dividends, let's just say this one isn't close. Procter & Gamble is one of the standard bearer stocks when it comes to dividend growth, with over 50 years of increases. The company's current yield is 3.37% and has grown by 10.38% over the last 5 years. Unilever's current yield is slightly higher at 3.59%, but dividend growth in the last 5 years is just 1.6%. (Procter & Gamble – 2, Unilever – 1)

Last but not least, balance sheet strength can be a critical factor in the success of a company. Procter & Gamble shows a debt-to-equity ratio of 0.30, and Unilever comes in somewhat higher at 0.55. With less debt on a relative basis, Procter & Gamble has more flexibility, and could in theory make earnings positive acquisitions more easily. (Procter & Gamble – 2, Unilever – 1)

Out of our six tests, Procter & Gamble scores a 11 and Unilever scores a 7. Procter & Gamble seems to be the clear winner. If there is a caveat, it is the recent sales growth difference between the two. Procter & Gamble has arguably the broader portfolio of brands, but Unilever is showing better growth when the two companies go head to head. If Unilever can get on the bandwagon of increasing their dividend on a regular basis, as Procter & Gamble has, this scorecard could be much closer. You could hardly go wrong with either company. If you are looking for a stable, growing company with very strong dividend growth, go with Procter & Gamble. If you are looking for somewhat of a turnaround play with possibly stronger growth, but less of a dividend track record, go with Unilever. Let me know what you think in the comments section below.

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