VALUATION HIGHLIGHTS

1. Fabric Care and Home Care constitutes 36% of the Trefis price estimate for Procter & Gamble's stock.
2. Baby & Family Care constitutes 24% of the Trefis price estimate for Procter & Gamble's stock.
3. Beauty constitutes 18% of the Trefis price estimate for Procter & Gamble's stock.

WHAT HAS CHANGED?

1. PG Stock Performance

PG stock has witnessed gains of 10% from levels of $140 in early January 2021 to around $155 now (Jan 29, 2024), vs. an increase of about 30% for the S&P 500 over this roughly 3-year period.

However, the increase in PG stock has been far from consistent. Returns for the stock were 18% in 2021, -7% in 2022, and -3% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 - indicating that PG underperformed the S&P in 2021 and 2023.

2. Q2FY2024 Earnings

P&G reported net sales of $21.4 billion in Q2'24, up 3% from $20.8 billion in Q2'23, led by 4% pricing gains, partly offset a 1% forex headwind while volume remained flat. Core EPS came in at $1.84, reflecting a 16% y-o-y rise, led by higher revenues and a 400 bps rise in operating margin.

POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE

P&G's EBITDA Margin: EBITDA margin for P&G increased slightly from 26.1% in 2018 to 26.8% in 2023 on the back of cost savings. Going forward, we expect P&G to witness further improvement in margins through its ambitious cost-savings program and a focus on productivity improvements. Divestment of underperforming brands will also provide a boost to margins. There could be a 10% upside to our price forecast if P&G's EBITDA margins rise to 32% by the end of our forecast period compared to our current forecast of around 29%.

BUSINESS SUMMARY

Procter & Gamble (P&G) is a global company with operations in over 180 countries. P&G manufactures and sells consumer goods across multiple product segments that are part of the larger beauty, grooming, health care, household care and baby care reportable business segments.

Note: After the divestiture of non-performing brands, P&G has restated its income statement for the last five years. Some values which were not restated by the company, have been estimated in the Trefis model and content, and the assumptions are stated explicitly in our content.

P&G's easy access to capital resources offers it capabilities to invest heavily in research and development (R&D) programs, brand building, marketing campaigns, direct-to-consumer advertising, and market research. P&G has an international presence with an established network of retail channels that provide it a route to leverage high growth in emerging markets by easily reaching the end consumer.

KEY TRENDS

Huge R&D budget and product innovation

P&G invests about $2 billion annually in research & development, approximately 50% more than its closest competitor, Unilever, and more than most of its competitors combined. The high R&D outlay helps P&G launch improved and innovative products at regular intervals to maintain, as well as expand, its market share. The latest examples of innovation by P&G include Gillette Fusion ProGlide, Crest 3D White, Laundry additives, and the Pampers thinness and absorbency upgrade. Trefis believes that innovation, particularly in the premium categories, is the key to driving profitability as P&G already has significant scale and a high level of concentration in developed markets like the U.S., Western Europe, and Japan.

Sustained marketing efforts to defend market share

P&G continues to invest heavily on advertising and promotion of its brands. Trefis believes P&G's advertising and marketing capabilities are important growth drivers for sales as they help maintain brand novelty and defend the high market share position that P&G enjoys.