The Procter & Gamble Company (PG) in Cincinnati, Ohio, provides branded consumer packaged goods to consumers in North and Latin America, Europe, the Asia Pacific, Greater China, India, the Middle East, and Africa. It operates in five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care. In comparison, Dallas, Tex.-based Kimberly-Clark Corporation (KMB) and its subsidiaries manufacture and market personal care and consumer tissue products worldwide. It operates through three segments: Personal Care; Consumer Tissue; and K-C Professional.
Despite supply chain, labor, and inflationary challenges amid a resurgence COVID-19 cases, the consumer goods industry has been rebounding thanks to pent-up demand and rising consumer spending. In addition, according to The Conference Board, the consumer confidence index was 115.8 points in December, up from an upwardly revised 111.9 in November. Strong consumer confidence is expected to translate into more sales. Furthermore, rising demand for digital goods, automated buying, ambient computing, and edge manufacturing are expected to drive the consumer goods market’s growth. Therefore, both PG and KMB should benefit.
PG’s stock has gained 11.1% in price over the past three months, while KMB has returned 7.8%. Also, PG’s 15.6% gains over the past six months are significantly higher than KMB’s 6.4% returns. And PG is the clear winner with 17.2% gains versus KMB’s 4.1% returns in terms of the past nine months’ performance.
But which of these two stocks is a better buy now? Let’s find out.
Latest Developments
On Jan. 5, 2022, P&G Beauty debuted its virtual storytelling world, BeautySPHERE, at the Consumer Electronics Show. This first step into the metaverse allows visitors to virtually interact with the company’s portfolio of brands through live and simulated content. This facility could increase the demand for its products.
On Oct. 25, 2021, KMB’s Chairman and CEO, Mike Hsu, said, "We will continue to invest in our brands and capabilities as we navigate through this volatile and difficult macro environment. Our strategy is working, and we remain confident in our future and our ability to create long-term shareholder value."
Recent Financial Results
PG’s net sales increased 5% year-over-year to $20.34 billion for its fiscal first quarter, ended Sept. 30, 2021. However, its operating income declined 5% year-over-year to $5.02 billion, while its net earnings came in at $4.13 billion, representing a 4% year-over-year decrease. Also, its EPS was $1.61, down 1% year-over-year.
KMB’s net sales increased 7% year-over-year to $5.01 billion for its fiscal third quarter, ended Sept. 30, 2021. However, its adjusted operating profit declined 7.6% year-over-year to $745 million, while its adjusted net income came in at $548 million, representing a 6.8% year-over-year decrease. Also, its adjusted EPS came in at $1.62, down 5.8% year-over-year.
Past and Expected Financial Performance
PG’s revenue and EPS have grown at CAGRs of 4.9% and 12.6%, respectively, over the past three years. Analysts expect PG’s revenue to increase 4.1% for the quarter ending March 31, 2022, and 3.9% next year. The company’s EPS is expected to grow 5.1% for the quarter ending March 31, 2022, and 7.6% next year. And its EPS is expected to grow at a 6.9% rate per annum over the next five years.
In comparison, KMB’s revenue and EBITDA have grown at CAGRs of 1.4% and 8.6%, respectively, over the past three years. The company’s revenue is expected to increase 5.8% for the quarter ending March 31, 2022, and 3.3% next year. Its EPS is expected to decline 15.1% for the quarter ending March 31, 2022, but grow 9.1% next year. Also, KMB’s EPS is expected to decline at a 1% rate per annum over the next five years.
Profitability
PG’s trailing-12-month revenue is 3.99 times what KMB generates. PG is also more profitable, with gross profit and net income margins of 50.48% and 18.33%, respectively, which compare with KMB’s 32.93% and 10.34%.
However, KMB’s 316.04%, 11.11%, and 20.43% respective ROE, ROA, and ROTC are higher than PG’s 29.84%, 9.64%, and 14.51%.
Valuation
In terms of forward non-GAAP P/E, PG is currently trading at 26.89x, which is 15.6% higher than KMB’s 23.27x. However, KMB’s 11.40x forward non-GAAP PEG ratio is 135.1% higher than PG’s 4.85x.
POWR Ratings
PG has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In comparison. KMB has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
PG has a B grade for Quality. This is justified given PG's 50.48% trailing-12-month gross profit margin, which is 46.6% higher than the 34.43% industry average. In comparison, KMB has a Quality grade of C, which is in sync with its 32.93% trailing-12-month gross profit margin, which is 4.3% lower than the 34.43% industry average.
PG has a C grade for Sentiment. This is justified because Wall Street analysts expect the stock to hit $163.43 in the near term, which indicates a potential 3.3% upside. In comparison, KMB has a D grade for Sentiment. This is justified because Wall Street analysts expect the stock to hit $135.33 in the near term, which indicates a potential 5.3% decline.
Of the 66 stocks in the Consumer Goods industry, PG is ranked #9. In comparison, KMB is ranked #30.
Beyond what I have stated above, we have also rated the stocks for Growth, Value, Stability, and Momentum. Click here to view all the PG ratings. Also, get all the KMB ratings here.
The Winner
The consumer goods industry is expected to grow significantly with expanding digital engagement. While both PG and KMB are expected to gain, we think it is better to bet on PG now because of its higher profit margin and better growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Consumer Goods industry here.
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PG shares were trading at $159.78 per share on Friday afternoon, up $1.49 (+0.94%). Year-to-date, PG has declined -2.32%, versus a -2.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.
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