The Procter & Gamble Company’s (NYSE:PG) latest earnings announcement in June 2018 revealed that the business experienced a slight headwind with earnings declining from US$9.86b to US$9.49b, a change of -3.8%. Below is my commentary, albeit very simple and high-level, on how market analysts view Procter & Gamble’s earnings growth trajectory over the next couple of years and whether the future looks brighter. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.
Market analysts’ prospects for next year seems buoyant, with earnings growing by a robust 18.3%. This growth seems to continue into the following year with rates reaching double digit 24.6% compared to today’s earnings, and finally hitting US$12.17b by 2021.
Even though it’s informative understanding the rate of growth each year relative to today’s level, it may be more valuable estimating the rate at which the business is moving on average every year. The pro of this technique is that we can get a better picture of the direction of Procter & Gamble’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 8.1%. This means, we can expect Procter & Gamble will grow its earnings by 8.1% every year for the next couple of years.
For Procter & Gamble, there are three relevant aspects you should look at:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is PG worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether PG is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of PG? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.