Does Procter & Gamble Support Rising Prices Post-Earnings?

With shares of Procter & Gamble (NYSE:PG) trading around $79, is PG an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Procter & Gamble engages in the manufacture and sale of a range of branded consumer packaged goods. The company operates in five segments: Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care. The products provided by Procter & Gamble are my regarded as essential to a large segment of the worldwide population. As populations continue to grow and adopt its products and as a leading provider, Procter & Gamble stands to see rising profits for many years. Worldwide demand for Procter & Gamble products will continue to drive profits for this huge conglomerate.

The stock reported earnings before the opening bell October 25, 2013, posting earnings per share of $1.05 and $21.21 billion in revenue, which are relatively in line with expectations. Jon Moeller, the company’s CFO, was optimistic about the data, saying that he expects full-year adjusted earnings to rise to 7 percent growth in the second half of the year. The markets took in the news with a lukewarm attitude, with the shares trading down slightly after digesting the report. Not surprising, considering that the stock is already trading near all time highs.

T = Technicals on the Stock Chart are Strong

Procter & Gamble stock has been moving higher in the last couple of years. The stock is currently trading near all time high prices but may need a little more time at current prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Procter & Gamble is trading slightly above its rising key averages, which signal neutral to bullish price action in the near-term.

PG

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Procter & Gamble options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Procter & Gamble Options

16%

0%

0%

What does this mean? This means that investors or traders are buying a very minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Procter & Gamble’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Procter Gamble look like and more importantly, how did the markets like these numbers?

2013 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

8.33%

-19.85%

7.32%

143.90%

Revenue Growth (Y-O-Y)

2.25%

0.86%

2.00%

1.98%

Earnings Reaction

-1.34%*

1.66%

-6.56%

4.01%

Procter & Gamble has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Procter & Gamble’s recent earnings announcements.

* As of this writing

P = Weak Relative Performance Versus Peers and Sector

How has Procter & Gamble stock done relative to its peers, Johnson & Johnson (NYSE:JNJ), Kimberly-Clark (NYSE:KMB), Colgate-Palmolive (NYSE:CL), and sector?

Procter & Gamble

Johnson & Johnson

Kimberly-Clark

Colgate-Palmolive

Sector

Year-to-Date Return

17.81%

31.26%

24.40%

21.25%

24.68%

Procter & Gamble has been a poor relative performer, year-to-date.

Conclusion

Procter & Gamble provides a variety of essential products to consumers in a multitude of countries around the world. A recent earnings release has investors expecting a little more from the company. The stock has been moving higher in recent years and is now consolidating near all time high prices. Over the last four quarters, earnings and revenues have been on the rise, however, investors have had mixed feelings about the company. Relative to its peers and sector, Procter & Gamble has been a weak year-to-date performer. WAIT AND SEE what Procter & Gamble does at current prices.

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