Procter & Gamble’s Fiscal 3Q16 Valuation Multiple and Initiatives for Further Growth

Inside Procter & Gamble's Soaring Operating Margin in Fiscal 3Q16

(Continued from Prior Part)

Relative valuation

So far in 2016, Procter & Gamble (PG), or P&G, and Kimberly-Clark (KMB) are trading at higher valuations than both the S&P 500 Index (IVV) (SPY) (VOO) and the Dow Jones Industrial Average (DIA). Procter & Gamble is trading at a PE (price-to-earnings) multiple of 20.7x forward earnings. Kimberly-Clark is trading at 20.4x forward earnings.

In comparison, the S&P 500 Index and the Dow Jones Industrial Average are trading at forward PE multiples of 17.7x and 16.6x, respectively, as of April 28, 2016.

Valuation versus peers

Procter & Gamble’s peers also include Colgate-Palmolive (CL), Estée Lauder (EL), which are trading at PE multiples of 24.7x and 29.2x, respectively—both higher than PG. Coty (COTY) is trading at a valuation of 30.7x forward earnings.

Innovation leader

According to P&G Chief Financial Officer Jon Moeller, P&G continues to be the innovation leader in US categories. For example, P&G had four of the top ten innovations and six of the top 13 innovations in 2015, according to an IRI Innovation Pacesetters report. These 2015 innovations include Tide Simply Clean & Fresh, Always Discreet, Fusion ProGlide FlexBall, Venus Swirl, Febreze Unstoppables, and Tide Plus Ultra Stain Release.

In order to make progress in China, P&G upgraded Pampers’ premium diaper pants to improve fit and softness and is launching mid-tier pants and premium taped diapers to increase share in China. Also, the rollout of Gillette Fusion FlexBall and SK-II continues to deliver strong share growth.

Cleaning up the portfolio

P&G is focusing on shutting down more remote single-category production sites and planning to build new multi-category facilities. This will likely help localize the company’s manufacturing and sourcing and reduce costs as well as help in hedging currency exposure. P&G has discontinued or consolidated around 55 brands, including Duracell, and plans to exit 50 more brands, including 41 beauty brands in the transaction with Coty (COTY).

To learn more about P&G’s business, please read Procter & Gamble: Your Guide to the Largest Consumer Staples Firm. For more industry updates and analysis, please visit our Consumer Products page.

Browse this series on Market Realist:

• Part 1 - Behind Procter & Gamble’s Winning Streak in Earnings

• Part 2 - Why Procter & Gamble’s Fiscal 3Q16 Revenue Fell while Its Organic Sales Grew

• Part 3 - Inside Procter & Gamble’s Beauty Segment Organic Sales Growth in Fiscal 3Q16