As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Procter & Gamble Co (PG).
Profile
Since its founding in 1837, Procter & Gamble has become one of the world’s largest consumer product manufacturers, generating more than $80 billion in annual sales. It operates with a lineup of leading brands, including more than 20 that generate north of $1 billion each in annual global sales, such as Tide laundry detergent, Charmin toilet paper, Pantene shampoo, and Pampers diapers. Sales outside its home turf represent more than half of the firm’s consolidated total.
Recent Performance
Over the past twelve months the share price is up 15.53%.
Source: Google Finance
Inputs
- Discount Rate: 6%
- Terminal Growth Rate: 3%
- WACC: 6%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2025 | 16.5 | 15.57 |
| 2026 | 17.21 | 15.32 |
| 2027 | 17.96 | 15.08 |
| 2028 | 18.74 | 14.84 |
| 2029 | 19.56 | 14.62 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 671.56 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 501.83 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 75.42 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 577.25 billion
Net Debt
Net Debt = Total Debt – Total Cash = 25.15 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 552.10 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $234.94
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $234.94 | $171.28 | 27.10% |
Based on the DCF valuation, the stock is undervalued. The DCF value of $234.94 share is higher than the current market price of $171.28. The Margin of Safety is 27.10%.
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