Procter & Gamble’s Stock Up 25% Over The Past Year: Should You Still Hold On?

by Trefis Team
+13.15%
Upside
115
Market
130
Trefis
PG
Procter & Gamble
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Procter & Gamble’s (NYSE: PG) stock currently stands at around $125 per share, up from around $99 at this time last year. However, we expect a fair price of around $130 per share for P&G’s stock. Our price estimate is based on expected 2020 earnings per share of $4.98 and a price-to-earnings multiple of around 26.1x.

We have summarized our forecasts in our interactive dashboard on Procter & Gamble’s Valuation where we detail some of the key steps in identifying P&G’s valuation sensitivity to changes in its segment revenues, shares outstanding, and valuation multiple.

We arrive at the stock price estimate for Procter & Gamble as:
Stock Price = (Total Revenue x Net Income Margin / Shares Outstanding) x P/E Multiple

A] Estimating Procter & Gamble’s Total Revenue

  • P&G’s revenue has grown from $65.06 billion in 2017 to $67.68 billion in 2019, on the back of an increase in selling prices and steady growth in revenue from emerging markets.
  • After shedding over 100 underperforming brands and reinventing its supply chain in the last 5 years, P&G is finally expected to report steady, consistent revenue growth.
  • We expect this growth to continue, driving total revenue to $70.57 billion in 2020, a ~4% YoY growth.

 

B] Deriving Procter & Gamble’s Net Income

  • Net Income dropped from $9.86 billion in 2017 to $3.63 Billion in 2019, primarily due to the $8 billion Gillette write-down.
  • However, we expect it to grow to around $12.29 billion in 2020, as net margins rise to levels above that in 2017.

C] Determining Procter & Gamble’s EPS

  • EPS has dropped from $3.80 in 2017 to $1.45 in 2019, and we estimate it to be $4.98 in 2020.
  • Expected EPS growth in 2020 can be attributed to higher Net Income, driven by growing revenue and net margins, and lower outstanding share count.

D] Estimating Procter & Gamble’s Share Price

  • Our Price Estimate of $130 For P&G’s Stock is based on our Detailed Valuation Model, and implies a 26.1x P/E Multiple on expected 2020 EPS of $4.98

See all Trefis Price Estimates and Download Trefis Data here

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