Procter & Gamble Co: $PG Cash Flow Valuation Update

Current Price: ~ $67/share
Yield: ~ 3.24%


Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer. The firm operates with a lineup of leading brands, including 25 that generate more than $1 billion in annual global sales such as Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. P&G recently sold its last remaining food brand, Pringles, to Kellogg. Sales outside of the U.S.

Estimated WACC for the firm today is 4.70% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2003	7218
2004	7338
2005	6541
2006	8708
2007	10490
2008	12768
2009	11681
2010	13005
2011	9925
2012	9320

Average Annual Growth FCF: ~ 4%

CAGR FCF: ~ 3%

Consensus Forecast Industry 5-Year Growth: ~ 14% per year

Consensus Forecast Company 5-Year Growth: ~ 8% per year

Internal Growth Rate: ~ 3%

Sustainable Growth Rate: ~ 7%

Scenario 1

• Start at $9320 million FCF
• Assume a 5-year growth rate in FCF of 8% per year, then no growth or 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	9320
1	10066
2	10871
3	11741
4	12680
5	13694
Terminal Value	314357

The firm's future free cash flows, discounted at a WACC of 4.70%, give a present value for the entire firm (Debt + Equity) of $300988 million. If the firm's fair value of debt is estimated at $30148 million, then the fair value of the firm's equity could be $270840 million.  $270840 million / 2810 million outstanding shares is approximately $96 per share and a 20% margin of safety is $77/share.

Scenario 2
All else being equal,

• Assume a 5-year growth rate in FCF of 4% per year, then 0% growth in FCF per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	9320
1	9693
2	10081
3	10484
4	10903
5	11339
Terminal Value	250658

• Present Value of the entire firm (Debt + Equity): $244849 million
• Value of Equity: $214701 million or $76/share
• 20% margin of safety is $61/share

Sources

Morningstar.com

Yahoo! Finance

PG.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Procter & Gamble: $PG cash flow valuation update

Current Price: ~ $63/share
Projected Yield: ~ 3.31%

Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units, and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Since 2001, the company has doubled the sales it derives from developing markets, acquired and integrated Wella and Gillette, and sold its pharmaceutical and coffee businesses.

I estimated the firm's WACC today at 6.31% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and growth rates:

Year	FCF $Millions
2002	6063
2003	7218
2004	7338
2005	6541
2006	8708
2007	10490
2008	12768
2009	11681
2010	13005
2011	9925

Average Annual Growth FCF: ~ 7%

CAGR FCF: ~ 6%

Consensus Forecast Industry 5-Year Growth: ~ 13% per year

Consensus Forecast Company 5-Year Growth: ~ 9% per year

Starting at $9925 million FCF, assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $Millions
0	9925
1	10818
2	11792
3	12853
4	14010
5	15271
Terminal Value	263699

The firm's future cash flows, discounted at a WACC of 6.31%, give a present value for the entire firm (Debt + Equity) of $247,693 million. If the firm's fair value of debt is estimated at $35,400 million, then the fair value of the firm's equity could be $212,293 million.  $212,293 million / 2750 million outstanding shares is approximately $77 per share and a 20% margin of safety is $62/share.

Sources

Morningstar.com

Yahoo! Finance

PG.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Procter & Gamble: $PG declares 9% quarterly dividend increase

CINCINNATI, April 11, 2011 – The Board of Directors of The Procter & Gamble Company (NYSE:PG) declared an increase in the quarterly dividend from forty-eight point eighteen cents ($0.4818) to fifty two point five cents ($0.525) per share on the Common Stock and on the Series A and Series B ESOP Convertible Class A Preferred Stock of the Company, payable on or after May 16, 2011 to Common Stock shareholders of record at the close of business on April 29, 2011 and payable on the dividend payment date for the Common Stock to Series A and Series B Preferred Stock shareholders of record at the start of business on that date. This represents a 9% increase compared to the prior quarterly dividend.

P&G has been paying a dividend for 121 consecutive years since its incorporation in 1890 and has increased its dividend for 55 consecutive years at an annual compound average rate of approximately 9.5%.

Source

SEC.gov - 8K filing

The Procter & Gamble Company ($PG) and Teva Pharmaceutical Industries ($TEVA) Form Consumer Health Care Partnership

Companies Create New Business Model to Become a Leading Player in Consumer Health Care


CINCINNATI, OH and JERUSALEM, ISRAEL, March 24, 2011 – The Procter & Gamble Company (NYSE: PG) and Teva Pharmaceutical Industries Ltd. (NASDAQ: TEVA) today announced the signing of a master agreement to create a partnership in consumer health care by bringing together both companies’ existing over-the-counter (OTC) medicines and complementary capabilities to accelerate growth.


Source
SEC.gov - Teva news release

Procter & Gamble: fairly valued at $64/share

I believe Procter & Gamble ($PG), at approximately $64/share is fairly valued on a cash flow valuation basis.  Assuming all else at $PG meets my standard for good business, I'd buy it today for the long term at $50.

Since its founding in 1837, Procter & Gamble has become the world's largest consumer product manufacturer, with a lineup of famous brands. The brands are sold through three global business units and include Tide laundry detergent, Charmin toilet paper, Pantene shampoo, Cover Girl cosmetics, and Iams pet food. Since 2001, the company has doubled the sales it derives from developing markets, acquired and integrated Wella and Gillette, and sold its pharmaceutical and coffee businesses.

I estimated the firm's WACC at 7.81% using the Capital Asset Pricing Model and the company's recent SEC filings.

Recent free cash flows and noted growth rates:

Year	FCF $Millions
2001	3318
2002	6063
2003	7218
2004	7338
2005	6541
2006	8708
2007	10490
2008	12768
2009	11681
2010	13005
TTM	10503

Average Annual Growth: approx. 19%
CAGR: approx. 16%
Consensus Forecast Industry 5-Year Growth: approx. 11% per year
Consensus Forecast Company 5-Year Growth: approx. 9% per year

Assuming the company achieves a 5-year growth rate in FCF of 9% per year, and assuming that after the next five years, the company achieves no growth in FCF or 0% growth per year forever:

Discounted Cash Flow Valuation

Year	FCF $ Millions
0	10503
1	11448
2	12479
3	13602
4	14826
5	16160
Terminal Value	225481

The firm's future cash flows, discounted at a WACC of 7.81%, give a present value for the entire firm (Debt + Equity) of $209,078 million. If the firm's fair value of debt is estimated at $34,000 million, then the fair value of the firm's equity could be $175,078 million.  $175,078 million / 2800 million outstanding shares is approximately $63 per share and a 20% margin of safety is $50. Assuming all else at $PG meets my standard for good business, I'd buy it today for the long term at $50.

Sources
Morningstar.com

PG.com

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.