Procter & Gamble vs. Unilever – Motley's Fool

There is a lot to love about Procter & Gamble (NYSE: PG) and Unilever (NYSE: ONE). These companies make products that people around the world use every day, and both pay good dividends.

Procter & Gamble offers household products such as Tide, Gillette, Charmin, Crest and Oral-B. Unilever brands include Dove, Lipton, Breyer & Ben & Jerry's, as well as several international brands.

Since both companies enjoy similar benefits in terms of brand power and size, this contest for a better buy will be decided by the numbers. We will compare the two values ​​in terms of financial strength, valuation, dividends and growth expectations to determine which represents the best buy for current investors.

Financial courage

Procter & Gamble and Unilever both have more debt than cash, which is not a bad thing. These companies do not have to worry about the economic recession because consumers will always buy cleaning products, soap and other staples during times of economic downturn.

Nevertheless, the company with greater liquidity can benefit the shareholders in many ways, including increasing the dividend payment or repurchasing shares. It also provides management with more strategic options in terms of reinvestment in growth initiatives or accretive acquisitions that enhance the company's growth and profitability.

In this spirit, here is how the two companies measure up to key financial indicators:

Data source: YCharts. TTM = last 12 months.

First, note that both companies are similar in size based on annual sales. Despite this size, P & G has significantly more liquidity in its balance sheet, generates more free cash flow and generates a sufficient operating product to cover its interest expense 48 times.

Winner: Procter & Gamble

Valuation and dividends

When it comes to choosing between two stocks to buy, it is always important to take into account the valuation of each of them. Here's how the two stocks compare on the price / earnings ratio and the dividend yield:

Data Sources: YCharts and Yahoo! Finance.

Unilever wins on every measure. Not only does the stock show a lower valuation, but the company is also expected to generate higher earnings growth than P & G (see below), which is why Unilever has a PEG ratio (growth of price / income) lower. In addition, the stock offers a higher dividend yield despite paying a lower percentage of its earnings.

Winner: Unilever

Which company is growing faster?

P & G has spent the last few years simplifying its product portfolio and eliminating unnecessary costs to improve performance. These measures improved margins, but also allowed management to focus on investments with the best growth prospects.

In the last two quarters, organic sales growth accelerated to 4% year-on-year, thanks to the general strength of most categories. Strong revenue growth drove double-digit growth in earnings per share adjusted on a currency neutral basis. In the second quarter of fiscal year, adjusted earnings growth reached 13% from one year to the next.

However, the grooming segment (10% of total sales) was faced with growing competition from niche brands offering quality shaving products at lower prices than P & G's Gillette brand. As a result, organic sales in the grooming business were down 3% from last quarter and net profit in this sector decreased 11%.

Whatever the case may be, while most categories are at their peak, management expects organic sales in fiscal year 2019 to increase by 2% to 4% and profits will increase. adjusted from 3% to 8%. Wall Street analysts expect P & G to increase earnings by 6.5% a year over the next five years.

On the other hand, Unilever also recorded solid results. Adjusted revenue growth (excluding foreign currency) increased by 3.1% in 2018, resulting in adjusted earnings growth of 12.8%. These results were driven by the growth of all product divisions: beauty and personal care, home care, food and refreshments.

In terms of forecasts, management is asking for adjusted sales for 2019 to increase to the bottom of its long-term goal of 3% to 5%. Analysts predict that Unilever will grow its profits faster than P & G 9.3% per year over the next five years.

Both companies are performing well, but P & G is slightly at a disadvantage of having to deal with the grooming segment. Meanwhile, Unilever's wide range of products appears to be at full capacity, and with the management that demand slightly faster business growth in the short term, it has the advantage here .

Winner: Unilever

Unilever is the best buy

There you go. I do not think investors can be wrong with these actions. On the financial side, P & G is stronger, but Unilever exceeds it by valuation, dividends and growth forecasts. I would go with the manufacturer of Ben & Jerry's.