A Breakdown of P&G's Value and Outlook by Product Segment

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Procter & Gamble ( PG ) is the largest consumer goods company in the world. P&G manufactures consumer goods across a variety of segments and sells its products in over 180 countries across the globe. Around 41% of P&G's sales come from North America, while Western Europe generates 21% and developing markets account for over 32%. P&G maintains an envious portfolio of billion-dollar brands like Tide, Ariel, Gillette, Pantene, Olay and Oral-B, and competes with companies like Unilever ( UL ), Kimberly Clark ( KMB ) and Colgate-Palmolive ( CL ).

Given the wide variety of product segments and markets in which P&G operates, we decided to examine each segment's individual contribution to total company value. We estimate Procter & Gamble's stock value at $83.81 , roughly a 25% premium to market price. Our product segment analysis below is based on our proprietary estimate of P&G's stock value.

Among P&G's diverse range of products, the segments that can be expected to drive the company's value going forward are likely those that either (i) constitute a higher proportion of P&G's current revenues, and/or (ii) have a high expected growth rate. P&G's overall revenue growth in each segments is a function of both the overall market size and P&G's expected market share gains.

The following chart summarizes our estimates of P&G's business over the next five years (2011-16).

Percentages in parenthesis represent each product segment's contribution to P&G's current revenues. The horizontal bars illustrate our estimates for compound annual growth rate (CAGR) of 2011-16 revenues, split between growth in market size (in blue) and growth due to P&G's market share gains (in red) across each product segment.

The laundry segment leads the charge for P&G, representing 17% contribution to total revenues, but features relatively low expected market size growth (at 3.1% year-over-year). With its portfolio of detergents like Ariel and Tide (and the launch of its Tide Naturals variant targeting consumers in emerging markets like India), P&G is well-equipped to gain share and increase revenues at an estimated incremental 0.5% CAGR over pure market growth.

Fragrances and deodorants currently constitute 11% of P&G's revenues and we anticipate a 4.5% CAGR for revenues from this segment from pure market growth. We project similar market growth from the baby care segment, which contributes 10% of P&G's revenues.

Male grooming products, under the Gillette brand, currently generate 9% of P&G's total revenues. We estimate that the male grooming market will grow at a 5.8% CAGR while market share gains could add another 1.7% to annual revenue growth.

While facial skin care contributes only 3% to P&G's current revenues, this segment exhibits the highest market-wide growth potential due to the expanding popularity of anti-aging skin care. Further, P&G's Olay brand of skin cremes could trigger additional market share gains, prompting our estimate for 7.1% CAGR of revenues from this segment.

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See our full analysis for Procter & Gamble's stock here.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas , Stocks , US Markets

Referenced Stocks: CL , KMB , PG , UL

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