PROCTER & GAMBLE Co (PG) stock intrinsic value fair value estimate & owner earnings analysis

THE BUSINESS. Procter & Gamble makes everyday household and personal-care products: Fabric & Home Care (Tide, Ariel, Downy, Gain, Dawn, Cascade, Febreze; 35% of fiscal 2026 sales), Baby, Feminine & Family Care (Pampers, Always, Tampax, Bounty, Charmin; 24%), Beauty (Head & Shoulders, Pantene, Olay, Old Spice, Native; 19%), Health Care (Crest, Oral-B, Vicks, Metamucil; 14%) and Grooming (Gillette, Venus, Braun; 8%). Sales in the year to June 2026 were $87.0 billion, 48% of it in the United States, and Walmart accounts for about 16%. The company has paid a dividend for 136 consecutive years and raised it for 70. Its economics rest on leading brands bought over and over in small amounts, which has let it pass rising costs through to prices over long periods. WHAT IT EARNS. We measure owner earnings as operating cash flow, less swings in working capital, less stock-based pay, less the capital spending needed to keep the business as it is. Spending that simply funds sales growth (at the decade-average 4.5% of sales) is treated as growth investment rather than upkeep. Non-cash write-downs are added back because they are not ongoing costs: the $8.3 billion write-down of the Gillette shaving business in fiscal 2019, the $1.3 billion Gillette brand write-down in fiscal 2024, and the mostly non-cash $755 million loss on leaving Argentina in fiscal 2025. The erosion those write-downs signal is carried in the bear case instead. Owner earnings per share were $5.57, $5.63, $6.28, $6.54 and $6.08 for fiscal 2022 through 2026. To value the business before its lenders are paid, we add back cash interest of about $0.9 billion a year. That gives business cash flow of $14.6, $14.7, $16.4, $16.9 and $15.6 billion over those five years. We anchor on the five-year median, $15.6 billion (about $6.43 a share). The window covers both the 2022-2023 squeeze, when raw-material costs ran ahead of price increases, and the recovery that followed, and it describes the company after its 2016-2017 brand pruning. RECENT TREND. Business cash flow fell 8% in fiscal 2026 (owner earnings per share down 7%) even though sales rose 3.3%. There are two identifiable causes. First, restructuring charges were $1.2 billion before tax under the plan announced in June 2025 (cutting up to 7,000 non-manufacturing jobs, exiting some brands and markets, and reworking the supply chain). That compares with $1.1 billion in fiscal 2025, most of which was the non-cash Argentina loss. Second, capital spending rose to $4.4 billion, 5.1% of sales against a decade average of about 4.5%. The company says the plan will cost $1.5-2.0 billion over two years, with more than half already incurred in fiscal 2026, so fiscal 2027 charges should be smaller. That is the reason the base case has 2% growth in fiscal 2027 rather than continuing the decline. We give no credit for savings from the job cuts because the company says it will reinvest them. THE CASES (all discounted at 6%; risk is expressed through the range between cases). Base, $135 a share: business cash flow of $15.6 billion grows 2% a year for 30 years, starting in fiscal 2027, and then holds flat. That rate is below what the business has actually delivered: sales grew 2.9% a year from fiscal 2016 to 2026, and business cash flow about 3.0% a year from fiscal 2020 to 2026. It relies on long-demonstrated pricing pass-through and on brands that have held first or second place in their categories for decades. It does not rely on market-share gains or new categories. The business is worth about $354 billion; after net obligations of $26.7 billion, the equity is worth $327 billion. Bear, $93 a share: cash flow resets to the fiscal 2022-2023 level of $14.6 billion, the level reached when input costs last outran pricing. It then grows only 0.5% a year for ten years and stays flat in dollars after that, which means a steady decline after inflation. The named pressures are all in the filings: unit-volume losses to competitors that the company itself cites in Greater China and North America, continued erosion in Gillette shaving (written down twice), reliance on Walmart for 16% of sales, exposure to resin and pulp costs, and tariffs. The business is worth about $253 billion; after $26.7 billion of net obligations, $226 billion. Bull, $164 a share: cash flow returns in fiscal 2027 to the fiscal 2025 level of $16.9 billion, a level already reached under today's conditions, as the above-normal restructuring ends. It then grows 3% a year through year 10, the rate actually achieved since fiscal 2020, and 2.5% through year 30, then holds flat. The business is worth about $423 billion; after $26.7 billion of net obligations, $396 billion. DEBT AND COMMITMENTS. At June 30, 2026, borrowings were $34.1 billion: $4.8 billion of commercial paper, $6.5 billion of bonds due in fiscal 2027 and $22.8 billion due later. Of the $9.9 billion in cash, we treat about $7.9 billion as surplus to operating needs. We also deduct the $3.8 billion agreed price for Thorne, a vitamins and supplements brand. That deal was signed on August 4, 2026 and is expected to close in the quarter ending December 2026. The company has not disclosed Thorne's earnings, so no case gives it any earnings credit. Outside owners' stakes in subsidiaries ($0.2 billion) are also deducted. Long-term debt carries a weighted-average rate of about 3.3%, well below 6%. Over the bonds' remaining lives that cheap financing is worth about $3.6 billion, which reduces the burden. Net obligations come to about $26.7 billion, or $11 a share. Credit ratings are Aa3/AA-, $8.0 billion of bank back-up lines are undrawn, and interest of about $0.9 billion is covered many times over even in the bear case. No maturity or covenant materially affects the outcome. CHANGE SINCE OUR LAST ESTIMATE. Our previous figures ($58 / $93 / $133) discounted each case at a different rate (8.5% to 11%) and added a perpetual growth rate at the end. We now discount every case at the same 6% and let the gap between cases carry the risk, which raises all three values. At the same time we now assume lower growth (2% in the base case against 4.5% before) and deduct the Thorne purchase price, and both of those lower the values. MARGIN-OF-SAFETY PRICE, $78. The shares pay about $4.22 a year in dividends (fiscal 2026 dividends of $10.2 billion). From $78, a move to the midpoint of the bear and base values over three years implies about 20% a year. A move only to the bear value implies about 12% a year. The range between bear and base is narrow for a business this durable, but a 20% annual return still requires a price below the bear value. No business condition is needed beyond the price. WHAT WOULD MAKE THIS WRONG. A lasting loss of pricing power, with competitors or store brands forcing price cuts across Tide, Pampers or Charmin. Capital spending staying above 5% of sales permanently. Thorne and future acquisitions repeating the Gillette experience. NOT FULLY RECONCILED. In fiscal 2025, about $1.65 billion of operating cash outflow sits in an 'other' line that includes $806 million of retiree-benefit effects and a $562 million final-stage 2017 tax-law payment. The filings do not fully separate cash from non-cash items in that line. We followed the company's own grouping of it with working capital, and the five-year median limits its effect.