Procter & Gamble Co (NYSE:PG) has been around since 1837. And as one of the great corporate success stories it’s learned a thing or two about what it takes to remain viable in a difficult market.
Efficiency, innovation, value: These are ideas PG understands and why the company has been around for more than a century and a half.
Those ideas also constitute a few of the reasons I think PG is a good value stock to hold.
PG Is Trimming the Fat
Enter Procter & Gamble CEO A. G. Lafley, a man who began his second stint helming PG in 2013 and who is credited with turning the company around in the early 2000s. Lafley retired in 2010 but was brought back onboard to help PG regain its edge.
Lafley’s plan consists of getting rid of up to 100 brands to make PG leaner and meaner. The ultimate goal is to get the company down to 60 to 70 core brands to quicken growth and make the company more manageable.
This would also help quiet those who say PG is too big and needs to be broken up.
As for Lafley, he has a proven track record. In his first go-around as CEO, Procter & Gamble doubled its sales and upped return for shareholders 119%.
Looking Beyond a Dismal Quarter
The elephant in the room is PG’s abysmal earnings report for the fiscal second quarter. Procter & Gamble earned nearly $2.4 billion for the quarter, down from $3.4 billion reported for the same period the year before, a decrease of 31%.
Adding fuel to the fire is PG’s struggle with a strengthened dollar, which translates to weaker sales overseas. Considering the company derives about two-thirds of its revenue from international markets, the situation could appear bleak.
The good news is that Procter & Gamble isn’t taking standing still. In addition to streamlining its brands, PG is ramping up marketing efforts through innovative ad campaigns designed to reach the next generation of consumers.
Take PG’s Like a Girl campaign, for example. The ad aired during the Super Bowl and reached 50% of the 12 to 24-year-olds it was aimed at. It also went on to become one of the most discussed Super Bowl-related ads on Twitter and Facebook.
Of course, there isn’t anything PG can do about the strong dollar, but the dollar has shown some signs of weakening. A weaker dollar should mean stronger international sales.
PG Stock Is a Good Value
PG stock trades at 25 times trailing earnings and 19.5 times next year’s estimates. For Colgate-Palmolive Company (NYSE:CL) the numbers are 30 and 21 and for Clorox Co (NYSE:CLX) 28 and 23.
Procter & Gamble also beats its competitors in the dividend it pays. PG stock yields 3%, while CL yields 2.2% and CLX 2.7%.
Bottom Line
As one of the oldest corporations in the country, Procter & Gamble isn’t so much worried about surviving as it is thriving and giving shareholders a good return on their investment. To that end, PG is taking important steps to grow the company.
Add the fact that PG is a bargain compared to its competitors, offers an impressive dividend and has a proven performance record — and you get a value stock that’s hard to beat.
As of this writing, Will Emerson did not hold a position in any of the aforementioned securities.
