A Breakdown of P&G’s Value and Outlook by Product Segment

Procter & Gamble (NYSE:PG) is the largest consumer goods company in the world. P&G manufactures consumer goods across a variety of segments and sells its products in over 180 countries across the globe. Around 41% of P&G’s sales come from North America, while Western Europe generates 21% and developing markets account for over 32%. P&G maintains an envious portfolio of billion-dollar brands like Tide, Ariel, Gillette, Pantene, Olay and Oral-B, and competes with companies like Unilever (NYSE:UL), Kimberly Clark (NYSE:KMB) and Colgate-Palmolive (NYSE:CL).

Given the wide variety of product segments and markets in which P&G operates, we decided to examine each segment’s individual contribution to total company value. We estimate Procter & Gamble’s stock value at $83.81, roughly a 25% premium to market price. Our product segment analysis below is based on our proprietary estimate of P&G’s stock value.

Among P&G’s diverse range of products, the segments that can be expected to drive the company’s value going forward are likely those that either (i) constitute a higher proportion of P&G’s current revenues, and/or (ii) have a high expected growth rate. P&G’s overall revenue growth in each segments is a function of both the overall market size and P&G’s expected market share gains.

The following chart summarizes our estimates of P&G’s business over the next five years (2011-16).

Percentages in parenthesis represent each product segment’s contribution to P&G’s current revenues. The horizontal bars illustrate our estimates for compound annual growth rate (CAGR) of 2011-16 revenues, split between growth in market size (in blue) and growth due to P&G’s market share gains (in red) across each product segment.

The laundry segment leads the charge for P&G, representing 17% contribution to total revenues, but features relatively low expected market size growth (at 3.1% year-over-year). With its portfolio of detergents like Ariel and Tide (and the launch of its Tide Naturals variant targeting consumers in emerging markets like India), P&G is well-equipped to gain share and increase revenues at an estimated incremental 0.5% CAGR over pure market growth.

Fragrances and deodorants currently constitute 11% of P&G’s revenues and we anticipate a 4.5% CAGR for revenues from this segment from pure market growth. We project similar market growth from the baby care segment, which contributes 10% of P&G’s revenues.

Male grooming products, under the Gillette brand, currently generate 9% of P&G’s total revenues. We estimate that the male grooming market will grow at a 5.8% CAGR while market share gains could add another 1.7% to annual revenue growth.

While facial skin care contributes only 3% to P&G’s current revenues, this segment exhibits the highest market-wide growth potential due to the expanding popularity of anti-aging skin care. Further, P&G’s Olay brand of skin cremes could trigger additional market share gains, prompting our estimate for 7.1% CAGR of revenues from this segment.

See our full analysis for Procter & Gamble’s stock here.