How to Play P&G Stock Following Friday's Q1 Results

One can easily see this stock trying to regain trend today.
By Stephen Guilfoyle ,

Nelson Peltz

Somewhere, Nelson Peltz is smiling. Even if the firm remains in one large unit. Appointed to Proctor & Gamble's (PG) - Get Report board of directors last December, the stock's share price may not yet be quite back to the level where it was as calendar year 2017 closed out, but the shares are now a long way from their bottom in May as well. What happened? Looks like solid execution to me. The firm reported their fiscal first quarter this morning. Revenue hit the tape at $16.69 billion, good enough for a beat of $220 million, and good enough to barely squeeze out some year over year growth, despite a negative exchange rate impact estimated at 3%. There's a lot more.

The important Beauty segment experienced organic sales growth of 7% y/y, while Home Care saw similar growth of 5%. The firm was able to guide FY 2019 results toward the higher end of consensus opinion, expecting organic sales growth of 2% to 3%. The firm also expects adjusted free cash flow productivity to top 90%.

The Best Part

Proctor & Gamble CEO David Taylor was succinct. Taylor said simply: "We generated string consumption, organic volume and organic sales in the first quarter. This keeps us on track to deliver our top and bottom line targets for the fiscal year." Markets had obviously not priced that in. Markets also obviously like the fact that the firm is also on track to pay $7 billion in dividends, while simultaneously repurchasing up to $5 billion worth of stock in common shares. Rock and Roll.

The Play

I bought Proctor & Gamble in May, close to the year's low. Sold some puts along the way. Even received a dividend payment. Sold the shares in mid-September, not far from the top. Very nice trade. Thought I was real smart... until I had no position in the name this morning. So, do I re-engage? Let's figure out how.

One can easily see this stock trying to regain trend today. The good Lord knows that I don't like to chase after a stock that I've missed. The Fibonacci fan model indicates that first level support will hit 80 next week, and close in to 84 by mid-November. Third level support could reach the 78 level by the end of that month. Don't believe in this stuff? If you've got a better way to price risk, let me know.

Trade Ideas (minimal lots)

I would not purchase equity today, if coming in flat, which I am. If a trader does go the equity purchase route, I recommend incremental entry. I usually lead with 1/8 of my intended position size, less even in more volatile names.

If Flat:

-Sell one $85 November 16th $85 put (last: $0.83)

-Sell one $78 January 18th $80 put (last: $0.79)

Outcomes... The trader's account is credited for $162. If the shares go higher, it's lunch money. If the shares collapse, worst case is a long position of 200 shares in January at a net basis of $81.69. That trader would at that point sell two out of the money calls to further reduce basis.

If Already Long: the January 18th $92.50 calls are paying $0.76 this morning. I would look at selling those.

At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.

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