Procter And Gamble Has Upside Of 30%

| About: The Procter (PG)

Procter & Gamble Co. (NYSE:PG) is a consumer goods company producing, distributing, selling and marketing care products around the world. Brands such as Bounty, Charmin, Cascade, Tide, Ariel, Dash, Pampers, Duracell, Gilette, Oral-B and Braun can be found in almost every household anywhere in the world. Brand awareness certainly is very important in consumer goods, probably more than in any other industry, as products are usually used quickly and decisions about repetitive buys must be formed by consumers in a short period of time. PG excels at convincing customers and owns an impressive product portfolio that ranges from beauty products to household care.

I consider brand development and innovative products that deeply diversify existing product ranges as PG's primary competitive advantage. Not only is the product portfolio convincing, the operating metrics of the company are just as well: the return on equity stands at over 14% and the gross margin at 63%. The company operates very profitably for a manufacturing company. It currently trades at a P/E of 16x earnings, which is decent but still leaves room for multiple expansion. Investors get to enjoy a 3.5% dividend, which is way above treasury yields.

Analysts like PG as well. They estimate a 2013 average EPS of $3.91 per share while I predict a $4.05 EPS, which is just 3% above consensus. With an earnings multiple of 20 (attributable to the impressive product portfolio and cash flow strength), the company's intrinsic value stands at roughly $81 per share—marking nearly 30% from current valuations. Since my EPS estimate is in the range of analyst estimates and the multiple of 20 is rich, but still appropriate, I rate PG a BUY.

Traders might want to exploit a fall in prices down to $61.80, as the gap needs to be closed before heading higher.

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

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