Procter & Gamble Company

DCF to market gap -43.7% (tolerance 15.0%). WACC (Valuation / WACC / WACC): the cost of equity at beta 1, the market-average required return: The DCF equity value at the snapshot, 211.5 billion dollars, is 43.7 per cent below the market capitalisation of 375.6 billion. The discount rate causes it: the market's enterprise value implies a steady-state WACC of 6.43 per cent against the model's 9.09 (cost of equity 9.41 at beta 1); P&G's own regression betas of 0.36 to 0.40 would put the cost of equity near 6.6 to 6.7 per cent. The forecast is not the cause: revenue grew 2.7 per cent a year over FY2021 to FY2026 and ROIC ran 20.3 to 22.9 per cent over FY2023 to FY2026, and the forecast stays near that record. A WACC near 6.4 per cent, i

Residual income to market gap -40.1% (tolerance 15.0%). Long-run nominal GDP growth (Valuation / Market inputs), the growth of residual operating income after FY2037, at the model's WACC: The residual-income equity value at the snapshot, 225.0 billion dollars, is 40.1 per cent below the market capitalisation of 375.6 billion. At the model's WACC of 9.09 per cent the market prices in residual operating income growing 6.88 per cent a year forever after FY2037, against the 3.8 per cent the model uses; revenue grew 2.7 per cent a year over FY2021 to FY2026 and ROIC ran 20.3 to 22.9 per cent over FY2023 to FY2026. A perpetual growth of 6.88 per cent, or a WACC near the market-implied 6.43 per cent, closes the gap.