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The Procter & Gamble Company Message Board

  • cartorman cartorman Feb 18, 2009 7:31 PM Flag

    Is PG undervalued?

    Any concern about P&G needs to be weighed against the facts versus some of the hype thats been in teh news lately. From these facts, I would conclude P&G is undervalued. Some perspective on this opinion.
    Using the years 2000 and 2001 (noting every recession is different)there were key events that drove the market and P&G in particular down to the mid-fifties from %101.06 (a 43.8% drop): There was the dot-com recession, the Trade Towers bombing and a scare that P&G was majorly changing it's business model by buying American Home Products. If we look at P&G today and compare it to the average of this two-year downturn, and the fact the Company is expected to deliver about +$0.02 above 2008 FY, the undervalued thesis begins to emerge.

    The average P/E ratio in '00/01 was 34.2 vs 11.75 today this also compares to the recent 5-year average of 21.0.
    Todays revenues index 2.109; EPS f/continuing operations index 3.211 (and 1.262 to 5-yr avg); Dividend per share indexes 2.388 (1.333 to 5-yr. The current fiscal year, aside from FX effects of 5%-7+%, will look very similar to 2008 where the following the following numbers compare:

    Cash flow vs '00/01 index 3.018; Income f/ operations index 3.196; Gross Margin indexes 1.143; Payout factor for dividends (as a factor of EPS) indexes 0.717 (0.735 if the $1.60 is not increased); and Liabilities to Asset ratio indexes 0.801 (51.74 vs 64.57) indicating a significant reduction in dept load.

    From these comparisons and the current P/E ratio and share price, we can conclude P&G is considerably undervalued versus it's performance.

    P&G is one of the few companies that understands Total Shareholder Return and ingrains what that means to every mid-senior level manager in the firm. It is also a company that manages quarters, but does not compromise the longer-term health to "make a quarter".

    Although uffett trimed a small % of P&G (~9%) from it's portfolio it stills holds over 96 million shares and remains one of his top holdings. Net, I think this speaks for itself from one major investor/firm. As for the and Jim Cramer banging the negative drum on P&G over the last week or so (daily), one has to keep in mind he sees a bigger play in Unileaver which has been driven down far more. This is self-serving and consistent with other tactics he has historically used to drive stocks in his portfolio. Remember the "I love Lucent" theme.

    Opinions and the market fear factor aside, the above facts speak for themselves. P&G is grossly undervalued. For short-term traders, P&G is not the stock for them. If your long (and hold) P&G, you're going to be rewarded. This PG downturn/recession has happened before and the company/stock has come right back. Let the facts speak for themselves.

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