SWOT Analysis: Procter & Gamble
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
When considering an investment, having a framework around your research can be very helpful; It stops you from jumping like a grasshopper from interesting fact to interesting fact without ever considering the company as a whole. A Strengths, Weaknesses, Opportunities, and Threats analysis, more frequently called a SWOT, is one of the best ways to force yourself to consider both the good and the bad about a company and its prospects.
To create a SWOT analysis, all you need to do is make a quick, but thoughtful, list of what you consider a company's strengths and weaknesses, which are both internal factors, and the opportunities and threats it faces, which are both external factors. In the end, you'll have a valuable, and more complete, picture of your investment candidate.
A quick review of mega-cap Procter & Gamble (NYSE: PG) using a SWOT framework should help you get started using this tool. And, as a bonus, its a great dividend paying company that may be trading at an attractive valuation (which is why I'm looking at it).
Procter & Gamble is one of the world's largest branded consumer packaged goods providers. Founded more than one hundred years ago, it has used acquisitions and innovation to solidify its impressive list of brands in the world's markets. Today it reaches more than 180 countries with products ranging from batteries to laundry detergent and from perfume to razors. The company has 25 brands that have revenues of $1 billion or greater.
- Powerful collection of well-known brands.
- Massive world-wide distribution network.
- Impressive and historically successful R&D efforts.
- Possesses the size and financial strength to successfully take on large acquisitions and support long-term corporate change.
- Reliance on a collection of key brands for a material amount of the company's top line.
- Focus on high-end of the market.
- Growth hard to achieve for such a large and diversified portfolio, particularly in mature product categories.
- Easy to “under invest” in lagging brands, compounding the brand's problems.
- The company must constantly reinvent its products or face flagging sales.
- Must keep track of consumer needs and wants in many disparate markets.
- Growth of the middle class in developing markets.
- Fierce competitive landscape, with well-heeled participants like Kimberly-Clark (NYSE: KMB) and Johnson & Johnson (NYSE: JNJ).
- Fickle consumer tastes.
- Often unstable economies and political structures in emerging markets.
- Consumer price sensitivity, particularly in emerging markets.
- Raw material cost increases.
For me, the most interesting thing to come out of this SWOT analysis was the difficulty I had coming up with more than one notable opportunity. The only material external factor that could spur growth was increasing affluence in developing markets, an already well publicized opportunity that many company's are attempting to take advantage of. Granted, Procter & Gamble operates as a “cash cow” business, but this single factor suggests that growth over the long term will likely be tied very closely to the world's economic growth rate.
Of course competition in this industry can never be given too much attention. My examples of Johnson & Johnson and Kimberly-Clark are really just two particularly large examples of the many well-heeled participants Procter & Gamble faces. Both JNJ and Kimberly have massive world-wide distribution machines and strong presences around the world. In the case of Johnson & Johnson, it has the added benefit of its medical device and drug businesses, in addition to the branded consumer products arm, which might make it a better option for investors seeking broad diversification with just a handful of stocks. Kimberly-Clark, meanwhile, has faced headwinds similar to those Procter & Gamble is facing, but seems to be doing a better job at adapting. For example, Kimberly recently announced plans to move away from diaper markets in regions with low birth rates while maintaining its focus on emerging markets where birth rates remain elevated. Clearly, Procter & Gamble has to execute well on a virtually constant basis or it will quickly find itself at a disadvantage.
Let me know if you think I've missed anything and what aspects of the SWOT you think are most interesting by commenting below. That said, I'm still reviewing Procter & Gamble and will post a more detailed analysis of the three risks I see as most important to the company's long-term success shortly.
ReubenGBrewer has no positions in the stocks mentioned above. The Motley Fool owns shares of Johnson & Johnson. Motley Fool newsletter services recommend Johnson & Johnson, Kimberly-Clark, and The Procter & Gamble Company. 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.If you have questions about this post or the Fool’s blog network, click here for information.