Procter and Gamble Long
My thoughts:
P&G specializes in household products, consumer goods, and personal care items with notable brands including Crest, Tide, Pampers, Dawn, and Gilette. In total, they own 65 individual brands which make them the biggest consumer goods company in the world. Today, they sell their products in 180 countries with over 5 billion customers. They believe to have been around for three centuries thanks to three simple ideas: leadership, innovation and citizenship
I believe P&G is one of the few companies right now that aren’t affected by the rise of living costs. In fact, the reason why most people are saving money right now is so that they can afford their products. If you take a look at their product range, they mostly operate in the personal health sector, something that consumers always buy and use, no matter the price. A few of these products are shampoos, razors, detergents, and pads. When was the last time you held back on buying shampoo or decided not to shave or not wash your clothes with a detergent due to inflation? They control almost the entire market when it comes to these products and its not just one brand that’s owned by them. For example they own Pantene, Heads & Shoulders, and Old Spice, the three main shampoos you see on the shelves. The same thing is true for their other products, they don’t just own one brand that nobody has heard of before, they own the biggest brands in each sector that have the most amount of sales.
Another positive thing I see in this company is their investor base. Usually when it comes to these types of companies, investors invest for long term gains and don’t sell their shares after one good or bad report. P&G is a great example of this as when looking at the future, this company will continue to thrive and dominate the market with the brands they own. So if the company comes out with a bad report that made their stock drop, the best option will be to buy more shares at this discounted price rather than selling what you already have. The second positive thing about the shares of this company is their % movement. The average movement after a quarterly result is usually between 1% to 3%. The reason why I consider this to be a positive thing is because it keeps the meme and new investors away and only attracts the people who are in this company for the long term and know the fundamentals of P&G. Stocks with high % movements usually attract beginners as they think it’s a quick way to make money. At the same time you constantly have people selling or buying shares, depending on their loss or profits so predicting a movement based on the company results is irrelevant as the only thing people look for are their own quick gains.
The third reason why I want to long this company is because of their past performance. They have a 100% EPS beating rate which shows that their customer base and business strategies are strong enough that even in the worst environments, they are still able to do well. To further back up my point, back in November when they reported their results, their stock was at $128 however, it has now jumped to $151, without them coming out with any sort of reports. This a great sign, specially in today’s environment as everybody is extra cautious with their investments and most stocks have gone down. At the end of the day, it doesn’t matter how good a report is if the investors don’t see a future in the company and now that we are entering a recession, many people have put their money into safer stocks such as P&G.
Having record revenues doesn’t matter anymore as it’s due to raised product prices and not a higher number of sales so the main thing that matters is the EPS. taking a look at P&G, their EPS is expected to grow this quarter, in fact, it’s the highest it has been since the January of last year. Also predicting that they will beat it like every other quarter, this has led me to believe they have a strong report once again.
Another sector that I believe to do very well this quarter is baby care. They own diaper brands such as Pampers. I’ve noticed a lot more babies outside recently and I believe one of the causes behind this was quarantine. Considering that Pampers is one of the leading diaper brands, this has become a huge advantage for them as I think this sector is facing a record number of sales.
I’ve also seen many of their products in Iran, where it’s almost impossible to see anything that is coming from outside the country. Unlike other brands, they have customers in countries that almost no other company has so for example even if America is entering a recession, another country that they operate in could be going the exact opposite way which would make them have a higher number of sales.
The second sector they will do better than usual in is their medical care. They own many cold and flu medicine brands that are sold at pharmacies. During winter, people get sick the most so this will be their busiest time of the year specially now with the new influenza outbreak.
Research:
Procter & Gamble (PG) was named one of Bank of America's top U.S. stock picks for Q1 by Bank of America.
The firm expects demand to remain strong in P&G’s core categories during the quarter, including in the beauty, healthcare, and fabric care categories.
P&G also noted to have spent the time since the last recession narrowing its product portfolio and expanding price points both up and down the value ladder to help temper trade down risks during the current economic downturn.
P&G-owned brands have a significant market share. More specifically, 36% in fabric & home care; 30% in baby, fem & family care; 18% in beauty care; 20% in health care, and 47% in the grooming sector. Thus, the company practically has no serious competitors.
Colgate-Palmolive (CL) is one of the only P&G competitors, whose products are presented in more than one segment. It successfully develops lines of products for the home, oral hygiene, and body care but their sizes are just not comparable.
The company's strategy is that when entering a new market or in order to regain its positions, P&G seeks to constantly raise the bar of its products, which makes the brands stronger than those of competitors. Marketing also plays a big role. PG is one of the largest advertisers in the world with about 10% of its revenue annually spent on marketing. It stimulates sales through brand awareness, helps to enter new markets, and allows the company to charge higher prices than unadvertised brands. Procter & Gamble has a $2 billion R&D budget to respond to changing consumer packaging and product preferences.
PG continues to focus on cash efficiency and cost savings and sees this as a key driver of long-term growth. According to the company, each expense item is checked. The company has gone through a series of restructurings in the past, including a reduction in the number of brands (from 170 to 65) and product categories.
Consumer staples products are non-cyclical, so demand for them is more stable even during periods of recession than for consumer cyclical goods. Also, the main part of the company's products is all-weather, so sales do not change seasonally, with the exception of some health products. P&G products are and will be used by 5 billion people around the world, despite the economic turmoil. Thus, the company has a fairly predictable revenue structure.
As we experience the current bear market, P&G is the textbook example of a defensive stock -- a company with a balance sheet full of cash, stable and consistent earnings, and products people buy regardless of economic conditions. This provides P&G investors a level of protection (from a looming recession) you won't find in many other companies.
Many of P&G's products are consumer staples, meaning they are things people needs. As consumers likely slow spending, they'll cut back on eating out and other forms of entertainment, but they won't skip cleaning, grooming, feminine care, baby care, and the like. P&G's products will sell no matter what.
Expected movement:
The movement I’m expecting is 2%. The reason behind this low movement is that it’s fairly easy to predict the company’s results from past history and is something that is already known. I also expect the trade volume to be around 5k so this number won’t have any affects on the movement. The average movement after a report from this company is between 1-3% however, I dont see it going up 3% is it already is fairly valued and based on past performance, this is the price the company should be landing at. 1% movement also seems low considering the environment we are in right now so coming out with good results is a looked good upon and attracts buyers.
Market Cap: 356,046,953,516
P/E Ratio: 26.07
Estimated Movement: +2%
Report Time: Tomorrow before market open
Expected EPS: $1.59