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PG

Procter & Gamble

$151.77 USD 372.4B market cap February 1, 2026
Procter & Gamble PG BUFFETT / MUNGER / KLARMAN SUMMARY
1 SNAPSHOT
Price$151.77
Market CapUSD 372.4B
EVUSD 398.3B
Net DebtUSD 25.9B
Shares2.454B
2 BUSINESS

World's largest consumer packaged goods company with 10 product categories spanning fabric care (Tide, Ariel), grooming (Gillette), baby care (Pampers), hair care (Head & Shoulders), oral care (Crest, Oral-B), and more. Generates revenue through premium brand positioning, innovation leadership, and global distribution across 180 countries. 68 consecutive years of dividend increases.

Revenue: USD 84.3B Organic Growth: 2.0%
3 MOAT WIDE

Brand Power: #1 or #2 position in all 10 categories with 65+ years of brand building. Gillette owns 65% of global blades market. Tide/Ariel dominates fabric care. Pampers leads diapers globally. Scale: $84B revenue funds $2.1B R&D and massive marketing ($11B+/year). Cost advantages from global manufacturing footprint. Distribution: 80%+ weighted distribution in all major markets. Walmart (15%), Amazon, and retailers need P&G brands more than alternatives. Innovation: 43,000+ patents. "Superiority across 5 vectors" strategy - product, package, communication, retail execution, value. Recent wins: Dawn PowerWash, Gillette Labs, Oral-B iO. Pricing Power: Successfully passed through 15%+ cumulative price increases 2022-2024 with minimal volume loss in most categories.

4 MANAGEMENT
CEO: Jon Moeller (since 2021)

Excellent shareholder returns: $73B+ returned in last 5 years through dividends ($45B) and buybacks ($28B). 68 consecutive years of dividend increases - longest streak in CPG. Share count reduced ~5% over 5 years. Selective M&A focused on bolt-on acquisitions (Native, Billie). Strong FCF conversion at 88% of net income.

5 ECONOMICS
24.3% Op Margin
16.0% ROIC
USD 14.04B FCF
1.1x Debt/EBITDA
6 VALUATION
FCF/ShareUSD 5.72
FCF Yield3.8%
DCF RangeUSD 94 - 104

Conservative: 5% FCF growth years 1-5, 3% years 6-10, 2% terminal growth, 9% discount rate. Assumes no China recovery and moderate private label gains. Fair case implies $97/share. Bull case with China recovery: $115. Bear case with GLP-1 impact: $75.

7 MUNGER INVERSION -31.4%
Kill Event Severity P() E[Loss]
GLP-1 demand destruction (Ozempic/Wegovy adoption) -20% 25% -5.0%
Private label share gains accelerate -15% 40% -6.0%
China structural decline (nationalism, SK-II weakness) -12% 35% -4.2%
Pricing power exhaustion post-inflation -15% 30% -4.5%
Commodity cost inflation resurgence -8% 40% -3.2%

Tail Risk: Combined scenario: GLP-1 adoption hits 25%+ reducing snacking/grooming demand, recession triggers mass downtrading to private label, China nationalism spreads beyond SK-II to all Western brands. Could result in -40% revenue decline over 5 years and permanent moat erosion. Probability: 5-10%.

8 KLARMAN LENS
Downside Case

At $75 (50% decline), PG would trade at 11.5x earnings with 5.4% dividend yield. This is defensible floor given 68-year dividend streak, $14B+ FCF, and essential product categories. Even in bear case, ROE likely stays above 20% and dividend remains covered by FCF. Liquidation value is negative (goodwill heavy), but going concern value provides real floor.

Why Market Wrong

Market is NOT wrong. At 23x P/E for 2% organic growth company, market is pricing PG as an ultra-safe bond substitute with mild growth. This is rational in low-rate environment. The mispricing is not undervaluation but OVERvaluation relative to intrinsic value. Terry Smith owns for quality, not value.

Why Market Right

Bears correctly note: (1) Organic growth decelerating from 7% to 2% over 4 years, (2) China down 15% with no recovery timeline, (3) GLP-1 structural risk not priced, (4) Private label gaining 20-40 bps share annually, (5) Premium valuation leaves no margin for execution errors.

Catalysts

For entry at current price: NONE - already overvalued. For entry at $75: Market correction, recession, GLP-1 panic overshooting, China write-down, commodity spike fears. All would create temporary dislocation in stable business.

9 VERDICT WAIT
A T2 Resilient
Strong Buy$65
Buy$75
Sell$140

Procter & Gamble is a Quality A business with Wide Moat, 30.7% ROE, and 68-year dividend growth streak - but it trades 62% above $93.60 intrinsic value estimate. At $151.77, P/E of 23x for 2% organic growth offers NEGATIVE margin of safety. Terry Smith's 5.2% Fundsmith position reflects quality focus, not value focus. WAIT for $75 (Accumulate) or $65 (Strong Buy) - requires 50%+ decline from current levels. This entry would likely require market correction, recession, or material setback. Patient capital wins.

🧠 ULTRATHINK Deep Philosophical Analysis

PG - Ultrathink Analysis

Deep Philosophical Reflection on Procter & Gamble

The Real Question

What problem are we actually solving by investing here?

The surface answer is: "Own the world's best consumer brands at a reasonable price." But that answer contains a hidden assumption - that the price is reasonable.

The real question is: Why would Mr. Market offer us one of the world's safest businesses at a discount?

The uncomfortable truth: He wouldn't. And he isn't.

P&G trades at 23x earnings because the market correctly perceives it as a blue-chip compounder with low risk. The market is not inefficient here - it's pricing safety appropriately. We aren't finding value; we're paying for quality. These are different things.

Buffett himself has evolved. In 2016, he sold P&G (received from the Gillette acquisition) because even he recognized that paying premium prices for premium businesses yields mediocre returns. The magic of compounding requires both quality AND value.

Hidden Assumptions

What assumptions is the market making that might be wrong?

Assumption 1: Brand moats are permanent.

The market assumes Tide will dominate fabric care forever. But history warns otherwise. Remember when General Motors was "inevitable"? When Kodak owned photography? When Sears was America's everything store?

P&G's moat rests on brand equity built through 70 years of television advertising. But Gen Z doesn't watch TV. They watch TikTok. And TikTok's algorithm doesn't care about legacy. Native (P&G acquired) succeeded not through TV ads but through Instagram and word-of-mouth.

The question isn't whether Tide is dominant today. It's whether the mechanisms that created that dominance still function.

Assumption 2: Essential products mean essential margins.

People will always wash clothes, brush teeth, and clean dishes. True. But will they always pay premiums for branded versions?

Private label quality has converged dramatically. Costco's Kirkland diapers test comparably to Pampers in Consumer Reports. Amazon Basics razors work fine. Store-brand detergent cleans clothes.

The market assumes consumers will eternally pay 30-50% premiums for emotional branding. But premium-to-value ratios tend to compress over decades, not expand.

Assumption 3: GLP-1 is a blip, not a shift.

Wall Street has not priced in a world where 15-20% of the population takes Ozempic/Wegovy and related drugs. These drugs fundamentally alter consumption patterns:

  • Fewer meals = less food-adjacent products
  • Less snacking = less impulse purchasing
  • Weight loss = different grooming patterns (Gillette exposure)
  • Behavioral change = unknown second-order effects

This could be the biggest structural demand shift since the internet disrupted media. Yet PG trades as if GLP-1 is irrelevant.

The Contrarian View

What would have to be true for the bears to be right?

Bear Thesis: P&G is a melting ice cube disguised as a fortress.

For bears to be vindicated:

  1. Private label crosses the psychological threshold. There's a tipping point where "good enough" becomes socially acceptable. Aldi/Costco/Amazon have been steadily normalizing private label. One recession could accelerate this by 10 years.

  2. GLP-1 adoption exceeds expectations. If 30% of adults take these drugs by 2035, consumption patterns shift dramatically. Snacking categories collapse. Grooming patterns change. P&G's portfolio - designed for mid-20th century American consumption - becomes misaligned.

  3. China never recovers. The assumption that "China always recovers" may not hold in a Cold War 2.0 scenario. Greater China is 8% of revenue but was supposed to be 15%+ by now. Nationalism against Western brands could be structural, not cyclical.

  4. Digital-native brands win. Dollar Shave Club proved Gillette was extracting oligopoly rents. Though P&G adapted, the playbook is known. Every category is vulnerable to DTC disruption with superior unit economics.

If 2+ of these scenarios play out, PG's moat narrows substantially and 15-17x P/E becomes the new normal. That implies $100-110 price - a 30% decline from here.

Simplest Thesis

The investment case in one elegant sentence:

"Procter & Gamble is the world's greatest consumer brands company, and you should pay fair value - not luxury prices - to own it."

The thesis is not that PG is bad. It's exceptional. The thesis is that $152 is not fair value. It's a premium that implies perfection.

At $75, you're buying:

  • 30% ROE business
  • 68-year dividend streak
  • 5.4% yield
  • Wide moat (even if narrowing)
  • Reasonable growth expectations

At $152, you're buying:

  • All of the above, BUT
  • Priced for perfection
  • No margin for error
  • Negative margin of safety
  • 3.5% expected 5-year return

The same asset at different prices is different investments.

Why This Opportunity Exists

The deeper truth about why this mispricing might persist or correct.

This "opportunity" doesn't exist in the traditional value sense. There is no mispricing.

P&G trades at a premium because:

  1. Bond substitution. With bonds yielding 4%, a 2.65% dividend with 5% growth looks attractive to retirees and institutions seeking stable income. They're not analyzing intrinsic value; they're comparing yield + growth to alternatives.

  2. ETF inclusion. P&G is in every "quality," "dividend," "low volatility," and "consumer staples" ETF. Passive flows support valuation regardless of fundamentals.

  3. Mental accounting. Investors mentally bucket PG as "safe" and are willing to overpay for safety. The premium is for sleep-at-night comfort, not expected returns.

  4. Recency bias. P&G compounded beautifully for 30 years. Investors extrapolate past performance despite changing competitive dynamics.

The mispricing will correct when:

  • A recession forces retirees to sell for liquidity
  • Rising rates make bonds more attractive than dividend stocks
  • ETF outflows trigger mechanical selling
  • A material setback (China write-down, product recall) shakes confidence

None of these are predictable. But all are inevitable eventually.

What Would Change My Mind

The specific evidence that would invalidate this thesis.

I would become bullish on PG at current prices if:

  1. Organic growth re-accelerates to 5%+ for two consecutive years, proving the 2% slowdown was temporary, not structural.

  2. China recovers to double-digit growth and SK-II regains momentum, proving nationalism was cyclical, not permanent.

  3. GLP-1 adoption plateaus at <10% of population, proving the demand impact was overestimated.

  4. Private label share gains reverse for two consecutive years, proving brand premiums are resilient.

  5. A major acquisition (Unilever brands?) at reasonable price that materially improves growth profile.

I would sell (even at lower prices) if:

  1. ROE falls below 20% for two years, signaling competitive position deterioration.

  2. Dividend is cut or frozen - ending the 68-year streak would signal fundamental distress.

  3. Management misallocates capital through expensive M&A (see: Kraft-Heinz for cautionary tale).

  4. Operating margins compress below 18% without recession, signaling permanent moat erosion.

The Soul of This Business

What makes this company's competitive position inevitable or fragile?

P&G's soul is brand-building excellence in mass-market categories.

For 80 years, P&G mastered a formula:

  1. Create a product that works (innovation)
  2. Brand it aspirationally (marketing)
  3. Distribute it everywhere (scale)
  4. Price it at premium (margin)
  5. Repeat in adjacent categories (expansion)

This formula created Tide, Gillette, Pampers, Crest - brands that became categories.

But the formula assumed:

  • Mass media for reach
  • Physical retail for distribution
  • Consumer willingness to pay premiums
  • Limited information asymmetry

The internet challenged all four assumptions:

  • Fragmented media → harder to build mass awareness
  • E-commerce → brands compete on search, not shelf space
  • Reviews/ratings → consumers can evaluate alternatives
  • DTC → brands can go direct, bypassing P&G's distribution advantage

P&G adapted better than peers. E-commerce is 18% of sales. Digital marketing is sophisticated. But the company is playing defense, not offense. The moat is intact but not widening.

The soul is inevitability of need, not inevitability of dominance.

People will always wash clothes. Whether they wash with Tide at 2x the price of store brand - that's the fragile assumption.

The Patient Investor's Path

P&G is not a "never buy." It's a "not at this price."

At $152, you're renting a great business at a terrible cap rate.

At $75, you're buying it at a reasonable cap rate with a margin of safety.

The difference is $77/share - or roughly $190 billion in market value.

The path forward:

  1. Add PG to watchlist at $75 (Accumulate) and $65 (Strong Buy).

  2. Set price alerts. These levels require 50%+ decline - possible only in market correction or company-specific crisis.

  3. Monitor quarterly for thesis changes. Track organic growth, China trends, margin trajectory, private label share.

  4. Don't anchor to Terry Smith. His strategy is buy quality regardless of price. That's a valid approach but not value investing. His 5.2% position reflects quality, not value judgment.

  5. Wait. The pitch will come. Maybe 2027. Maybe 2030. But market corrections happen. And when they do, the best businesses get thrown out with the worst.

When that day comes:

PG at $65-75 would yield:

  • 5.4%+ dividend yield
  • 12x earnings
  • 20% expected 5-year return
  • Positive margin of safety
  • Sleep-well-at-night ownership

That's the investment worth making.

"The stock market is a device for transferring money from the impatient to the patient." — Warren Buffett

P&G tests your patience. Can you watch a great business rally for years and refuse to chase? Can you wait for Mr. Market to panic and hand you a bargain?

If you can, you deserve the returns that patience earns.

If you can't, you'll pay Terry Smith prices for Terry Smith returns - which are fine, but not exceptional.

The choice is yours.

Executive Summary

Investment Thesis (3 Sentences)

Procter & Gamble is a classic Buffett-style consumer staples company with an exceptional brand portfolio (Tide, Gillette, Pampers, Crest) generating 30.7% ROE and $14B+ annual free cash flow. The company possesses a Wide Moat through brand equity, scale advantages, and distribution dominance spanning 180 countries. However, at $151.77 and 23x P/E, PG trades 62% above our $93.60 intrinsic value estimate, offering negative margin of safety - this is a WAIT, not a buy.

Key Metrics Dashboard

Metric Value Assessment
Price $151.77 62% above fair value
P/E Ratio 23.3x Premium for 2% growth
ROE 30.7% Excellent, passes Buffett test
FCF Yield 3.8% Below required 5%
Dividend Yield 2.65% 68yr consecutive increases
Payout Ratio (FCF) 70% Sustainable
Organic Growth 2% Below 3-5% guidance
Margin of Safety -62% OVERVALUED

Decision

+------------------------------------------------------------------+
|                    INVESTMENT RECOMMENDATION                       |
+------------------------------------------------------------------+
| Company: Procter & Gamble          Ticker: PG                     |
| Current Price: $151.77             Date: Feb 1, 2026              |
+------------------------------------------------------------------+
| VALUATION SUMMARY                                                  |
| +-------------------------+-----------+------------------+         |
| | Method                  | Value/Shr | vs Current Price |         |
| +-------------------------+-----------+------------------+         |
| | Graham Number           | $55.70    | -63% OVERVALUED  |         |
| | Owner Earnings (10x)    | $67.46    | -56% OVERVALUED  |         |
| | Owner Earnings (15x)    | $101.19   | -33% OVERVALUED  |         |
| | DCF (5% growth, 9% WACC)| $104.21   | -31% OVERVALUED  |         |
| +-------------------------+-----------+------------------+         |
|                                                                    |
| INTRINSIC VALUE ESTIMATE: $93.60 (weighted average)               |
| MARGIN OF SAFETY: -62% (NEGATIVE - OVERVALUED)                    |
+------------------------------------------------------------------+
| RECOMMENDATION:  [ ] BUY  [ ] HOLD  [ ] SELL  [X] WAIT            |
+------------------------------------------------------------------+
| BUY PRICE (Strong Buy):     $65  (30% below IV)                   |
| ACCUMULATE PRICE:           $75  (20% below IV)                   |
| FAIR VALUE:                 $94                                   |
| TAKE PROFITS PRICE:         $112 (20% above IV)                   |
| CURRENT:                    $152 (62% above IV - OVERVALUED)      |
+------------------------------------------------------------------+
| QUALITY: A (Wide Moat, 68yr dividend streak, 30%+ ROE)            |
| TIER: T2 Resilient                                                |
| PRIMARY RISK: Private label share gains, China weakness           |
| CATALYST: None needed at proper price, market correction          |
+------------------------------------------------------------------+

Phase 0: Opportunity Identification (Klarman)

Why Does This Opportunity Exist?

Short Answer: It doesn't. PG is currently priced for perfection with no margin of safety.

The market is paying a 23x P/E for a company growing organic revenue at 2% and EPS at 5-7%. This implies the market believes:

  1. Moat is impenetrable (partially true)
  2. China will recover (uncertain)
  3. Private label threat is manageable (debatable)
  4. Pricing power remains infinite (doubtful in GLP-1 era)

Terry Smith's 5.2% Fundsmith position reflects PG's quality, not its current value. Quality and value are different concepts - Smith buys quality regardless of price, a strategy with mixed results when buying at premium valuations.

Opportunity Assessment

Factor Assessment
Forced selling? No - widely held
Complexity/stigma? No - ultra-simple business
Institutional constraints? No - largest consumer staples
Temporary problem? China is temporary, but stock hasn't repriced
Market overreaction? No - stock near highs despite headwinds

Conclusion: No opportunity exists at current prices. Wait for Mr. Market to offer a better price.

Phase 1: Risk Analysis (Inversion)

"All I want to know is where I'm going to die, so I'll never go there." - Munger

Top 10 Risks (Ranked by Expected Impact)

# Risk P(Event) Impact Expected Loss Mitigation
1 GLP-1 Demand Destruction 25% -20% -5.0% Category diversification
2 Private Label Share Gains 40% -15% -6.0% Innovation & premiumization
3 China Structural Decline 35% -12% -4.2% Only ~8% of revenue
4 Pricing Power Exhaustion 30% -15% -4.5% Cost productivity
5 Regulatory (PFAS/Chemicals) 15% -10% -1.5% Reformulation R&D
6 Amazon/DTC Disruption 20% -10% -2.0% E-commerce 18% of sales
7 Currency Headwinds 50% -5% -2.5% Natural hedging
8 Commodity Cost Inflation 40% -8% -3.2% $1.5B productivity target
9 Key Customer Concentration 10% -15% -1.5% Walmart 15% of sales
10 Management Succession 20% -5% -1.0% Deep bench

Total Expected Risk-Adjusted Downside: -31.4%

Inversion Section (Required)

How could this investment lose 50%+ permanently?

  1. GLP-1 Revolution - If Ozempic/Wegovy adoption reaches 20%+ of population, snacking, grooming (fewer meals = less shaving), and personal care categories could see structural 15-25% demand decline. PG's 3-5% organic growth assumption collapses.

  2. Private Label Inflection - Costco Kirkland, Amazon Basics, and store brands are closing the quality gap. If a recession triggers mass consumer downtrading, PG's premium positioning becomes a liability.

  3. China/Emerging Markets Failure - Greater China down 15%, Middle East soft. If emerging markets representing future growth permanently underperform, the "global growth" narrative dies.

What would make me sell immediately?

  • ROE dropping below 20% for 2+ consecutive years
  • FCF conversion falling below 80% of net income
  • Dividend cut or freeze
  • Loss of #1 or #2 position in 3+ major categories
  • Management compensation misalignment (stock options with low hurdles)

If I were short, my 3-sentence bear case: "PG trades at 23x earnings for a company growing 2% with negative China trends and GLP-1 overhang. Private label is gaining share in every recession, and the next one will accelerate the trend. At $152, you're paying luxury prices for a commodity business - fair value is under $100."

Can I state the bear case better than the bears? Yes - the bear case is stronger than most realize due to GLP-1 structural demand risk and private label gains.

Phase 2: Financial Analysis

DuPont ROE Decomposition (5 Years)

Year ROE Net Margin Asset Turnover Equity Mult.
2025 30.7% 19.0% 0.67x 2.41x
2024 29.6% 17.7% 0.69x 2.43x
2023 31.4% 17.9% 0.68x 2.58x
2022 31.6% 18.4% 0.68x 2.52x
2021 30.8% 18.8% 0.64x 2.57x

Analysis: Highly consistent ROE driven by:

  • Strong net margins (18-19%)
  • Low asset turnover (0.67x) - capital intensive
  • High leverage (2.4-2.6x equity multiplier)

Owner Earnings Calculation (Buffett)

Net Income (FY2025):              $15.97B
+ Depreciation & Amortization:    $2.85B
- Maintenance CapEx (60%):        $2.26B
- Working Capital Change:         $0.00B (assumed neutral)
= Owner Earnings:                 $16.56B

Owner Earnings per Share:         $6.75

ROIC vs WACC Analysis

Metric Value
ROIC 16.0%
WACC (estimated) 8.0%
Spread +8.0%

Verdict: Economic profit positive - creates value above cost of capital.

Valuation Trinity (Klarman Framework)

1. Liquidation Value (Floor)

Asset Book Value Liquidation % Liquidation Value
Cash $9.6B 100% $9.6B
Receivables $6.2B 90% $5.6B
Inventory $7.6B 50% $3.8B
PP&E $24.8B 30% $7.4B
Intangibles $21.9B 0% $0B
Goodwill $41.7B 0% $0B
Total Assets $26.4B
- Total Liabilities $72.9B
Net Liquidation Value -$46.5B

Per Share: Negative - no liquidation floor protection. This is NOT a Graham net-net.

2. Going Concern Value (DCF - Conservative)

Assumptions:

  • FCF Year 0: $14.04B
  • Growth Years 1-5: 5% (management guidance midpoint)
  • Growth Years 6-10: 3% (maturity)
  • Terminal Growth: 2%
  • Discount Rate: 9%
Year FCF ($B) Present Value ($B)
1 14.74 13.52
2 15.48 13.03
3 16.25 12.55
4 17.07 12.09
5 17.92 11.65
6 18.46 11.01
7 19.01 10.40
8 19.58 9.82
9 20.17 9.27
10 20.78 8.76
Terminal 302.5 127.6
Total 239.7B

DCF per Share: $97.67

3. Private Market Value

Recent consumer staples M&A multiples:

  • Unilever food: 3.0x revenue
  • Keurig Dr Pepper: 4.5x revenue
  • General Mills: 2.5x revenue

PG Private Market Value:

  • Revenue: $84.3B
  • Conservative Multiple: 3.0x
  • Private Market Value: $253B
  • Per Share: $103

4. Relative Valuation

Company P/E P/FCF EV/EBITDA Dividend Yield
PG 23.3x 26.5x 16.7x 2.65%
Unilever 18.2x 20.1x 12.8x 3.4%
Colgate 25.8x 30.2x 17.5x 2.2%
Nestle 22.4x 25.6x 15.2x 3.1%
Average 22.1x 24.8x 15.6x 2.8%

PG trades at a slight premium to peers despite lower growth than Colgate.

Margin of Safety Summary

Method Value Current Margin of Safety
Graham Number $55.70 $151.77 -63%
Owner Earnings (10x) $67.46 $151.77 -56%
Owner Earnings (15x) $101.19 $151.77 -33%
DCF $97.67 $151.77 -36%
Private Market $103 $151.77 -32%
Weighted Average $93.60 $151.77 -62%

Required MOS: 20% minimum. Current MOS: -62%. GAP: 82 percentage points.

Phase 3: Moat Analysis

Moat Sources

Moat Type Evidence Strength Durability
Brand #1 or #2 in 10 categories HIGH 20+ years
Scale $84B revenue, 180 countries HIGH 20+ years
Distribution 80%+ weighted distribution globally HIGH 15+ years
R&D/Innovation $2.1B annual R&D, 43,000 patents MODERATE 10+ years
Switching Costs LOW - consumers can switch easily LOW N/A

Brand Portfolio Assessment

Brand Category Global Share Moat Strength
Tide/Ariel Fabric Care #1 (17%) WIDE
Gillette Grooming #1 (65% blades) WIDE
Pampers Baby Care #1 (34%) WIDE
Crest/Oral-B Oral Care #1 (35%) WIDE
Head & Shoulders Hair Care #1 (10%) NARROW
Bounty Paper Products #1 US NARROW
Charmin Toilet Paper #1 US NARROW
SK-II Prestige Beauty Premium niche NARROW
Native Natural Personal Care Growing NASCENT

Pricing Power Evidence

Period Price Contribution to Growth
FY2024 Q1 +3 points
FY2024 Q2 +4 points
FY2024 Q3 +3 points
FY2024 Q4 +1 point
FY2025 Q1 +1 point

Trend: Pricing power normalizing as inflation subsides. Future pricing ~1-2% annually.

Moat Durability Assessment (Munger)

Threat Severity Timeline Mitigation
Private Label 4/5 5-10 years Innovation, premiumization
DTC Disruption 2/5 3-5 years E-commerce investment
GLP-1 Demand 3/5 5-10 years Category diversification
Regulatory 2/5 10+ years Reformulation capability
China Nationalism 3/5 3-5 years Local production, brands

Key Question: Will this moat be wider or narrower in 10 years?

Answer: SAME or SLIGHTLY NARROWER. Private label gains structural share each recession cycle. GLP-1 adoption is a wildcard. China nationalism affects premium Western brands. Moat intact but not widening.

Phase 4: Management & Capital Allocation

Leadership

Role Name Since Assessment
Chairman/CEO Jon Moeller 2021 Promoted internally, 35+ years at PG
CFO Andre Schulten 2022 Strong operational focus

Capital Allocation Track Record (5 Years)

Use of Capital Amount % of FCF Assessment
Dividends $45.2B 62% EXCELLENT - 68yr streak
Buybacks $28.0B 38% GOOD - reduced shares
M&A ~$5B N/A MODEST - selective
CapEx $16.1B 22% APPROPRIATE

Shareholder Returns (Last 5 Years)

  • Total cash returned: $73B+
  • Shares outstanding reduced: ~5%
  • Dividend CAGR: ~6%

Compensation Analysis

CEO Jon Moeller FY2024:

  • Base Salary: $1.8M
  • Cash Bonus: $5.2M
  • Stock Awards: $15.4M
  • Total: ~$22.4M

Alignment Assessment: Compensation linked to:

  • Organic sales growth
  • Core EPS growth
  • FCF productivity
  • Relative TSR

Verdict: Reasonably aligned but stock awards dominate - could encourage short-term thinking.

Phase 5: Catalyst Analysis

Identified Catalysts

Catalyst Type Timeline Probability Impact
China Recovery Operational 12-24 months 50% +10%
Market Correction External Unknown 40% +30% (entry)
Acquisition (Unilever unit?) M&A 12-36 months 15% +5%
GLP-1 Overhang Lifts Sentiment 24-36 months 30% +15%

No Catalyst Assessment

Conclusion: No catalyst needed if purchased at proper price ($65-75). At $152, no catalyst justifies the current valuation.

Phase 6: Decision Synthesis

Quality Scoring

Factor Score Weight Weighted
ROE > 15% 10/10 20% 2.0
Moat Durability 8/10 25% 2.0
FCF Consistency 9/10 20% 1.8
Management 7/10 15% 1.05
Dividend Track Record 10/10 10% 1.0
Balance Sheet 6/10 10% 0.6
Total Quality Score 84/100 (A)

Megatrend Resilience Score

Megatrend Score Notes
China Tech Superiority 0 Neutral - sells to both
Europe Degrowth +1 Immune - essential products
American Protectionism +1 Domestic champion
AI/Automation +1 Benefits manufacturing efficiency
Demographics/Aging 0 Mixed - baby vs aging products
Fiscal Crisis +1 Pricing power in inflation
Energy Transition +1 Low energy intensity
Total +5 T2 Resilient

Expected Return Scenario Analysis

Scenario Probability 5-Year Return Weighted
Bull (Recovery to $180) 20% +25% +5.0%
Base (Hold at $150) 50% +15% (divs) +7.5%
Bear (Decline to $100) 25% -25% -6.3%
Disaster ($70) 5% -55% -2.75%
Expected Return 100% +3.5%

Conclusion: Expected return of 3.5% over 5 years is BELOW required 10% annual return. WAIT for better entry.

Position Sizing (If at Buy Price)

Base Allocation:           4%
× (MOS/Target MOS):        (20%/20%) = 1.0
× (Quality/100):           84/100 = 0.84
× (1 - Risk Score):        (1 - 0.31) = 0.69
× Catalyst Multiplier:     0.7 (no catalyst)
= Recommended Position:    1.6%

Sell Triggers (Pre-Defined)

I Will Sell If:

  1. ROE drops below 20% for 2+ consecutive years
  2. Dividend is cut or frozen for first time in 68+ years
  3. FCF conversion falls below 80% of net income
  4. Loss of #1/#2 position in 3+ major categories to private label
  5. Stock reaches $140+ (50%+ above intrinsic value)

I Will NOT Sell Because:

  • Price drops without fundamental change
  • One bad quarter in China
  • Commodity cost headwinds
  • Currency fluctuations
  • Analyst downgrades

Monitoring Metrics

Metric Current Alert Level Action
Organic Growth 2% < 1% Review thesis
ROE 30.7% < 25% Investigate
FCF/Net Income 88% < 80% Investigate
Dividend Payout (FCF) 70% > 85% Review sustainability
North America Volume +4% < 0% Review thesis
China Organic -15% < -20% Monitor closely

Appendix: Source Documentation

Primary Sources

  • AlphaVantage Financial Statements API (5 years)
  • AlphaVantage Earnings Transcripts (FY24 Q1-Q4, FY25 Q1)
  • AlphaVantage Historical Prices (6,602 trading days)

Cross-Reference

  • P&G FY24 Annual Report (referenced in transcripts)
  • P&G Investor Day Nov 2024 (mentioned in FY25 Q1 call)

Calculations Shown

  • DCF Model: 10-year projection with terminal value
  • Owner Earnings: Buffett methodology
  • Graham Number: sqrt(22.5 x EPS x BVPS)

Final Recommendation

+------------------------------------------------------------------+
|                         FINAL VERDICT                              |
+------------------------------------------------------------------+
|                                                                    |
|   Procter & Gamble is a QUALITY A business trading at             |
|   OVERVALUED prices.                                              |
|                                                                    |
|   Terry Smith owns PG because of quality, not value.              |
|   Quality without value is not value investing.                   |
|                                                                    |
|   RECOMMENDATION: WAIT                                            |
|                                                                    |
|   Entry Prices:                                                   |
|   - Strong Buy: $65 (P/E 10x, 30% MOS)                           |
|   - Accumulate: $75 (P/E 11.5x, 20% MOS)                         |
|   - Fair Value: $94                                               |
|   - Current: $152 (62% OVERVALUED)                               |
|                                                                    |
|   Gap to Accumulate: $152 -> $75 = -51% decline needed           |
|                                                                    |
|   When Will This Opportunity Arise?                               |
|   - Market correction (next recession)                            |
|   - China write-down or material setback                          |
|   - GLP-1 demand destruction fears peak                           |
|   - Black swan event affecting consumer confidence                |
|                                                                    |
|   Patient capital waits. Mr. Market will offer a pitch.           |
|                                                                    |
+------------------------------------------------------------------+

"Price is what you pay. Value is what you get." - Warren Buffett

At $152, you're paying luxury prices. At $75, you'd be getting a world-class consumer franchise. Wait for the latter.