hey YouTube I'm Jimmy in this video I'm gonna walk through my analysis of
Procter & Gamble ticker simple PG this is a twenty third video in our series
we're analyzing all 30 stocks in the Dow Jones Industrial Average we're then
going to take that analysis and build three different portfolios a value at
dividend and a growth you can see a link in the description below to all the
other videos so we could break Procter & Gamble's business into a few different
segments we've got fabric and home which sells brands like Tide or Mr Clean
and then we have baby care and Family Care which sells brands like Pampers
diapers or Bounty paper towels then we have the beauty segment which has
different shampoos and things like that then we have grooming which sells razors
and health care which sells toothbrushes and toothpaste things along those lines
now what's interesting about Procter gamble is that in the past few years
they've really struggled this is a chart of revenue and as we could see revenues
been trending down and even though we have the next two years of projections
and they're from analysts that the lines in green well we could see that not a lot
of good things seem to be happening with revenue now when we switched to profits
this is a chart of earnings per share and as we could see they had a bad year
back in 2017 but even besides that earnings per share hasn't done too much
sure we have analyst projections and they
look decent going out the next couple years but if we just look at 2018 and we
compare that four dollars and twelve cents that they earned in 2018 back to 2015
which they in 4.08 well you could see it they didn't do too much in at least the
past few years but as I was researching Proctor and Gamble I found some
interesting things so if we were to go back just five or six years well Procter
& Gamble had a lot more businesses a lot more brands in a lot more different
segments than they have today for example they used to own Pringles
then back in 2012 they sold that to Kellogg they used to own covergirl the
makeup line but then they spun that out back in 2015 leave some for Folgers
Coffee but they sold it now the purpose of all this shifting around the business
according to management is to refocus Procter & Gamble's core business now
this partially helps explain the revenue chart and the struggles that they have
it's tough to grow revenue if you keep selling off a bunch of big brands
another interesting example that I came across was back in 2005 when Procter &
Gamble bought Gillette that's their grooming business well Warren Buffett's
Berkshire Hathaway used to own Gillette they had a huge stake in it then Procter
& Gamble comes in and they buy Gillette for Procter & Gamble's stock so Buffett
ends up with a ton of Procter & Gamble stock but then in 2014
apparently Buffett wanted back Duracell which was used to be part of Gillette
when Procter & Gamble bought it so Buffett takes his shares in Procter &
Gamble trades it essentially to Procter & Gamble for Duracell the standalone
business okay that was somewhat of a side note but I thought it was
interesting okay so where's Procter & Gamble's business heading today that
could either make it a good investment or a bad investment so one thing that
they're doing is they're trying to focus more on markets that are developing more
quickly than the domestic markets that are currently in one market in
particulars the Asian market and there that they've been able to post up gains
of nearly 8% organic growth compared to their 2% growth in North America
another big push that they're making is online now Procter & Gamble realizes
that they need to have a bigger online presence they need to push with
platforms like Amazon and Alibaba if they want to make meaningful inroads
in the online game one good strategic move they made a few years back as an
example is that some of Procter & Gamble's warehouses they share with
Amazon so I assume this is going to be a good thing for their presence on the
Amazon platform now one of the reasons I think Procter & Gamble could be an
interesting investment is that they're striving to become a more leaner and
more efficient business they've been working on a ten billion dollar
restructuring program they sold off businesses that were not in line with
what they described as their core business like Duracell or covergirl or
their pet food business and all of this is expected to lead to faster growth
improved margins and a better long-term control of their business which
ultimately could be a good thing for shareholders along these same lines
Procter & Gamble has cut a bit more than a quarter of their selling general
administrative expenses they're reducing their distribution routes they're
improving or they're trying to improve the efficiency of their plants now
personally I think that often large conglomerates like Procter & Gamble have
to do this type of thing to their business every now and again I think
you'd be healthy for the business and if it works it could end up being
rejuvenating for Procter & Gamble's stock a stock that has done very little
in the past five years so what do we think Procter & Gamble's stock is worth
now I want to point out that as far as their 10 billion dollar restructuring
program that they're doing well about two years ago they had completed a ton
of restructuring and they rolled out a new plan that's supposed to go to 2022 I
believe and some of our valuation is dependent on their ability to complete
this new round of restructuring and in theory make the company more efficient
so right now their current p/e is about 22 X and their expected earnings per
share for 2019 is supposed to be about 4 dollars and 40 cents now if we look at
the consumer staples ETF well we could see that the average p/e over there for
the whole group is about 18x so right now Procter & Gamble is trading at a
premium of about 20% to their industry now this tells me that much of the
pricing in the market is already accounting for the changes that Procter
& Gamble's trying to make and if I were going to assign a premium for Procter &
Gamble over the rest of their peers well it would have likely been right around
20% maybe 25% but basically the fact that they're already trading at a 20%
premium to peers well it seems that the stock is fairly valued right where it's
at right now and that assumes that they continue to efficiently execute their
plan to rejuvenate the business and there's always the risk that they don't
so for me if they need to pull off their plan just for their stock to be fairly
valued at the current price since they're already trading at a 20% premium
what if they stumble at all well it's likely that Procter & Gamble stock would
fall and to me that's simply too much risk to
get involved at this level personally I would like it if the stock fell back to
let's say that level well that would be more interesting but what do you think
is Procter & Gamble's something that we like one good part is that Procter &
Gamble is a defensive company and that's probably the reason it did so well at
the end of 2018 that being said they have a decent dividend yield of a bit
more than 3% so perhaps there's a place where in the dividend portfolio but as
far as the value portfolio I'm not sure I would much prefer it to fall I think
that it's too risky at this level any trouble here I think the stock will pull
back and give back some of the premiums that they're currently trading it but
what do you think is Procter & Gamble stocks something we should add to any of
our portfolios let me know what you think in the comments below if you
haven't done so already hit the subscribe button thank you so much for
sticking with me to the end of the video and I'll see in the next video thanks