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Michael Fowlkes' Analyst Insights

Options and ETF Analyst Writer
Michael Fowlkes
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Procter & Gamble reports fiscal Q1 earnings October 19

Michael Fowlkes

10/13/2018 11:54 AM

What's Happening

Consumer goods maker Procter & Gamble (PG) is scheduled to report its fiscal first-quarter results before the market open October 19. The consensus calls for earnings of $1.10 per share, up a penny from the same period last year. The stock is down 13% on the year.

Technical Analysis

PG was recently trading at $78.91 down $14.60 from its 12-month high and $8.17 above its 12-month low. InvestorsObserver’s Stock Score Report gives PG a 49 long-term technical score and a 32 short-term technical score. The stock has recent support above $77 and recent resistance below $82. Of the 16 analysts who cover the stock 4 rate it Strong Buy, 0 rate it Buy, 11 rate it Hold, 0 rate it Sell, and 1 rate it Strong Sell. PG gets a score of 38 from InvestorsObserver’s Stock Score Report.

Analyst's Thoughts

Procter & Gamble had a rough start to the year, but after hitting a bottom in May shares have rebounded and the stock was in a strong upward trend before trading lower in sympathy to the recent market sell off. The company has a strong earnings track record and the street expects a small beat this quarter with a whisper number of $1.13. The company has struggled to grow earnings, and profits are flat over the last five years. The company has been cutting costs which is expected to help boost the bottom line, and analysts forecast average annual earnings growth of 6.2% over the next five years. The stock has a forward P/E of 16.8, which combined with low forecast earnings growth will likely prevent the stock from trading too much higher from its current level barring a big earnings beat. Analysts have an average price target of $84.32 on the stock which is basically in-line with where PG was trading before the market selloff.

Stock Only Trade

If you're looking to establish a long stock position in PG consider buying the stock under $79. Sell if it falls below $73 or take profits if it gets to $91.

Bullish Trade

If you want a bullish hedged trade on the stock, consider a 1/18/19 65/70 bull-put credit spread for a $0.45 credit. That's a potential 9.9% return (36.8% annualized*) and the stock would have to fall 11.9% to cause a problem.

Bearish Trade

If you want to take a bearish stance on the stock at this time, consider an 1/18/19 85/90 bear-call credit spread for a $0.50 credit. That's a potential 11.1% return (41.4% annualized*) and the stock would have to rise 8.4% to cause a problem.

Covered Call Trade

If you like the stock but wish to lower your cost basis on a new position, you may want to consider a 1/18/19 $80 covered call. Buy PG shares (typically 100 shares, scale as appropriate), while selling the 1/18/19 $80 call for a debit of $76.61, per share. The trade has a target assigned return of 4.4%, and a target annualized return of 16.5% (for comparison purposes only).



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