Can Procter & Gamble Break Higher Post-Earnings?

With shares of Procter & Gamble (NYSE:PG) trading around $80, 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, Healthcare, 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 Procter & Gamble Company reported second quarter fiscal year 2014 net sales of $22.3 billion, unchanged versus the prior year period, including a negative three percentage point impact from foreign exchange. Organic sales grew three percent. Diluted net earnings per share were $1.18, a decrease of 15 percent versus a base period that included a $0.21 per share holding gain resulting from P&G’s purchase of the balance of its Baby Care and Feminine Care joint venture in Iberia. Core earnings per share were $1.21, a decrease of one percent versus the prior year. On a currency-neutral basis, core earnings per share increased eight percent for the quarter.

“P&G’s second quarter results came in as we expected,” said Chair, President, and Chief Executive Officer A.G. Lafley. “We’re on-track to deliver our objectives of 3-4% organic sales growth and 5-7 percent core EPS growth for the fiscal year. We expect strong earnings growth in the second half of the fiscal year driven by solid top-line growth, moderating headwinds from foreign exchange, and productivity savings that build throughout the year.”

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 surging higher and looks poised to continue. 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 between its rising key averages which signal neutral 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

17.37%

6%

3%

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

Put IV Skew

Call IV Skew

February Options

Average

Average

March Options

Average

Average

As of today, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral 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 Mixed 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

-15.11%

8.33%

-19.85%

7.32%

Revenue Growth (Y-O-Y)

0.47%

2.25%

0.86%

2.00%

Earnings Reaction

3.51%*

-0.75%

1.66%

-6.56%

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

* As of this writing

P = Average 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

-0.37%

-0.13%

4.15%

-2.85%

1.20%

Procter & Gamble has been an average 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 pleased with the company. The stock has been moving higher in recent years and is currently surging higher. Over the last four quarters, earnings have been mixed while revenues have been on the rise. Relative to its peers and sector, Procter & Gamble has been an average year-to-date performer. Look for Procter & Gamble to OUTPERFORM.

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