Procter & Gamble vs. Unilever: Which Consumer Goods Stock is a Better Buy?

The Procter & Gamble Company (PG) in Cincinnati, Ohio, and Unilever PLC (UL) in London are leading players in the global consumer goods market. PG sells packaged goods through mass merchandisers, e-commerce, grocery stores, membership club stores, drug stores, and department stores. The company operates in five business segments—beauty; grooming; health care; fabric & home care; and baby, feminine & family care. UL is a fast-moving consumer goods company that operates through Beauty & Personal Care; Foods & Refreshment; and Home Care segments.

Consumer goods stocks have seen strong sales growth in the second quarter of 2021, owing to rising commodity prices and an improving job market. Despite rising inflation, relatively inelastic demand for consumer goods should drive the industry’s growth in the coming months. The fast-moving, global consumer goods market is projected to grow at a 5.4% CAGR to $15.36 trillion by 2025. So, both UL and PG should benefit.

While UL’s shares have lost 4.6% in price over the past month, PG has advanced marginally. PG is a clear winner with 17% price gains versus UL’s 3.2% returns in terms of their past six months' performance. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

On August 19, 2021, PG introduced its  new Febreze Unstopables Touch Fabric Spray, which uses touch-activated scent technology. The new fabric spray is designed to be used on soft surfaces and hard-to-wash fabrics throughout the home. PG expects to witness high demand for this product in the coming months.

On September 2, 2021, UL and the Government of Tanzania agreed to establish an ambitious partnership to reinvigorate the Tanzanian tea industry. The partnership covers investment in UL’s estates, new factories and supply chain, R&D and support programs for smallholder farmers, and obtaining Rainforest Alliance certification so that all related tea production is sustainable. By promoting sustainable agriculture, this collaboration should enable UL’s business to grow substantially in the future.

Recent Financial Results

For its  fiscal fourth quarter, ended June 30, 2021, PG’s net sales increased 7.1% year-over-year to $18.95 billion. The company’s gross profit came in at $9.16 billion, representing a 4.6% year-over-year improvement. Its operating income was  $3.54 billion for the quarter, up 1.7% from the prior-year period. While its net earnings increased 3.8% year-over-year to $2.91 billion, its EPS increased 5.6% to $1.13. As of June 30, 2021, the company had $10.29 billion in cash and cash equivalents.

For its  first half ended June 30, 2021, UL’s revenue increased marginally year-over-year to €25.79 billion ($30.55 billion). The company’s operating profit came in at €4.43 billion ($5.24 billion), representing a 5.3% decline from the prior-year period. UL’s net profit was  €3.40 billion ($4.02 billion), down 4.1% from the year-ago period. Its EPS decreased 5% year-over-year to €1.19 ($1.41). The company had €4.07 billion ($4.82 billion) in cash and cash equivalents as of June 30, 2021.

Past and Expected Financial Performance

PG’s total assets and levered free cash flow have grown at CAGRs of 0.3% and 15%, respectively, over the past three years. Analysts expect PG’s EPS to increase 4.6% year-over-year in the current year and 7.3% next year. Its revenue is expected to grow 3.5% year-over-year in the current year and 4% next year.

In comparison, over the past three years, UL’s total assets and levered free cash flow have grown at  CAGRs of 3.8% and 50.8%, respectively. UL’s EPS is expected to decline 9.5% year-over-year in the current year and 8.5% next year. Its revenue is expected to grow marginally in the current year and 3.9% next year.

Profitability

PG’s trailing-12-month revenue is almost 1.3 times what UL generates. PG is also more profitable, with a 51.4% gross profit margin versus UL’s 43.5%.

Also, PG’s EBITDA  and net income margins of 28.3% and 18.8%, respectively, compare favorably with UL’s 20.3% and 10.7%.

Valuation

In terms of non-GAAP forward P/E, PG is currently trading at 24.33x, which is 27.3% higher than UL’s 19.11x.

In terms of forward EV/Sales, PG’s 4.74x is 68.7% higher than UL’s 2.81x.

POWR Ratings

While PG has an overall C grade, which translates to Neutral in our proprietary POWR Ratings system, UL has an overall B grade, equating to Buy. The POWR Ratings are calculated considering 118 different factors, each weighted to an optimal degree.

UL has a B grade for Value, which is consistent with its lower-than-industry valuation ratios. UL’s 15.19x forward EV/EBIT is 9.4% lower than the 16.78x industry average. However, PG’s C grade for Value reflects its higher valuation compared to its peers. The company has a 20.22x forward EV/EBIT, which is 20.6% higher than the 16.78x industry average.

In terms of Quality, PG has been graded a B, which is consistent with its higher-than-industry profitability ratios. PG has an 18.8% trailing-12-month net income margin, which is 241.6% higher than the 5.5% industry average. However, UL’s C grade for Quality is in sync with its relatively lower profitability ratios. The company has a 10.7% gross profit margin, which is  93.8% higher than the 5.5% industry average.

Of the 71 stocks in the Consumer Goods industry, PG is ranked #25, while UL is ranked #18.

Beyond what we’ve stated above, our POWR Ratings system has also rated UL and PG for Growth, Stability, Sentiment, and Momentum. Get all PG ratings here. Also, click here to see the additional POWR Ratings for UL.

The Winner

The sustained demand for consumer goods should help PG and UL to generate significant revenues in the coming quarters. However, with a relatively lower valuation, we think UL is a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Consumer Goods industry.

PG shares rose $0.17 (+0.12%) in after-hours trading Tuesday. Year-to-date, PG has gained 5.08%, versus a 21.54% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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