The company reported an excellent first quarter for fiscal 2013, with operating profits coming in at $783 million, 12% more than the same period last year. It saved $85 million through its cost-saving program, which provided a good boost to profits.
But, the issue is that earnings have not kept pace with the rising dividends, leading to an increase in the payout ratio to over 60%. Sales have increased 50% since 2003, but net income has risen by just 3%. Its debt-to-equity ratio is also very high at 140.98. Add to that, the company’s P/E ratio of 21.31 is very high compared to its average range of 15-17 over the past 10 years. Therefore, investors should give Kimberly Clark Corp (NYSE:KMB) a miss at current levels and wait for signals of improving EPS, coupled with a low P/E and improving cash, before getting into the stock.
Colgate-Palmolive Company (NYSE:CL) has also been strong on the sales front, reporting a 6% increase in organic sales growth last year. Management announced a $1.1 billion-$1.25 billion restructuring program in 2012, which will result in annual cost savings of $275 million-$325 million after tax per annum in the coming years. The world’s growing middle class, and Colgate-Palmolive Company (NYSE:CL) ’s dominant market share, leaves ample room for the company to grow in the coming years.
Final Takeaway
All the three companies have a similar forward P/E, but Procter & Gamble and Kimberly Clark Corp (NYSE:KMB) beat Colgate-Palmolive on P/B, P/S, EV/EBITDA, and Debt/Equity basis. But, as mentioned above, Kimberly-Clark is a miss for now, which makes The Procter & Gamble Company (NYSE:PG) the right option for investors. Billionaire investor, Bill Ackman, sees the company’s earnings per share growing from $4 to $6 by 2016. Considering the forward P/E remains stable near 18-20 levels, the stock price could see over 50% upside by 2016.
The Procter & Gamble Company (NYSE:PG) has delivered consistent results and is still going strong with its diverse product portfolio, increased presence in emerging markets, restructuring programs, A.G. Lafley back as the CEO, positive analyst expectations, cheap valuations, and an attractive dividend. Thus, I believe the current stock price offers an attractive investment opportunity for long term investors.
The article Is Procter & Gamble Still A Good Investment? originally appeared on Fool.com and is written by harsha lohia.
harsha lohia has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark and Procter & Gamble. harsha is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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