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The Procter & Gamble Company (NYSE:PG) provides consumer packaged products which are sold in more than 180 countries through stores of all sizes - convenience stores on the corner to superstores such as Costco. On August 1, 2013, the company reported earnings of $0.79 per share on $20.65 billion, which beat the consensus of analysts' estimates by $0.02 and $0.09 billion, respectively. The stock is up 19.06% in the last year and is beating the S&P 500, which has gained 16.83% in the same time frame, and with that in mind I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth a buy right now.

Fundamentals

P&G currently trades at a trailing 12-month P/E ratio of 20.67, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 17.08 is currently fairly priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $4.67/share. The one-year PEG ratio (2.39), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that P&G is expensively priced based on a 1-year EPS growth rate of 8.63%.

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. P&G boasts a dividend of 3.02% with a payout ratio of 56.6% of earnings while sporting return on assets, equity and investment values of 8%, 16.9% and 11.2%, respectively, which are all respectable values, but nothing to write home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.2% yield of this company is good enough for me to take shelter in for the time being. The company has been paying out increasing dividends for the past 57 years at a 5-year dividend growth rate of 10.2%, which I believe to be an awesome rate for such a mature company.

Technicals

(click to enlarge)

Looking first at the relative strength index chart (RSI) at the top, I see the stock near oversold territory with a value of 44.32 but with downward trajectory, which is a bearish pattern. To confirm that, I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is below the red line with the divergence bars decreasing in height from the downside, indicating the stock has a bit of upward momentum. As for the stock price itself ($79.77), I'm looking at the 20-day moving average to act as resistance and $77.34 to act as support for a risk/reward ratio, which plays out to be -3.05% to 1.3%.

Recent News

  1. The company had to recall several lots of new dry pet food products (Iams and Eukanuba) due to fears of salmonella poisoning but estimates that only a tiny fraction of its total dry pet food products may be affected.
  2. The company reported on August 1, 2013, earnings of $0.79, beating estimates by $0.02 and revenue of $20.65 billion beating estimates by $0.09 billion.
  3. For 2014 the company sees organic sales growth of around 3.5% and earnings growth of 5-7%.
  4. The company declared a $0.6015 per share dividend on July 9, 2013, with an ex-date of July 17, 2013, which was paid on August 15, 2013.

Conclusion

P&G is fairly valued based on future earnings but expensively priced on future growth prospects (one-year outlook). Financially, the dividend payout ratio is middle of the road and I don't doubt management will be able to continue to increase the dividend going forward. The technical situation of how the stock is currently trading is telling me we might be at a short-term bottom. Personally I would wait a couple of days to make a purchase to see what happens with the market, but it is fairly valued on earnings right now and the technicals may show short-term bullishness.

Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Procter & Gamble: Expensive, But Should Be Bought For The Dividend