The Procter & Gamble Company – A brilliant business at a hefty price tag (Earnings Analysis)
The Procter & Gamble Company – A brilliant business at a hefty price tag (Earnings Analysis)
After a disappointing fiscal Q1 earnings report, it is time to make up the balance!
The earnings season has kicked off again, and there is plenty to look closely at! I am trying to provide you with as many analyses as possible, and this time out, I am providing a quarterly update on Procter & Gamble.
In case you missed it, my analysis of the following earnings reports has also come out recently! Make sure to check those out as well, with plenty of valuable insights and top buying opportunities.
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Procter & Gamble PG 0.00%↑ is a company whose shares have been on my watchlist for many, many years now. However, I have never been able to pick up shares at a price that seemed right to me. These consistently trade at quite a hefty premium and for good reasons.
This company is the leading consumer staples business globally, with a presence in more than 180 countries and a brand portfolio that includes multiple billion-dollar brands like Pampers, Tide, Gillette, Pantene, and Olay, among others.
As a result, for years, it has been the golden standard in the consumer staples industry and one of the most pristine defensive investments out there, performing relatively consistently through the cycles. For reference, since its reorganization earlier in the last decade, the company has only reported two quarters in which revenue declined, and this was by no more than 1%. This includes the COVID-19 pandemic and record-high inflation in recent years.
Furthermore, despite this defensive nature, the company has been able to deliver absolutely brilliant returns to investors through consistent growth, dividend payments, and share repurchases, resulting in annual returns of around 12%, which is market-beating.
You won’t find many businesses with a moat as strong as PG that manage to outperform through the cycles with a defensive business model. On top of this, it is also a true dividend aristocrat with 68 years of consecutive dividend growth, an excellent current yield of 2.38%, and a healthy payout ratio of just below 60%.
No wonder this business comes at a premium, right? This is one I would love to own, probably forever, though only at the right price.
So, what should we make of the business and its valuation today?
The last time I covered the shares here on Substack was in January of this year, when I rated them a hold as they seemed fully priced. Ever since, shares have returned a solid 10%, although this has fallen short of the S&P500's 19% gain.
PG announced its fiscal Q1 earnings last week, so let’s take a close look at those results in order to get a better sense of its financial performance, prospects, and underlying developments before updating my financial projections and determining whether today is the right time to pick up some shares in this aristocrat.
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P&G faces economic challenges
As I said, PG announced its fiscal Q1 earnings last Friday pre-market and delivered somewhat mixed results, missing the revenue consensus but beating EPS. Initially, shares sold off a few percentage points in response to the results last Friday before recovering during the trading day and closing the day and week roughly flat.