Procter & Gamble's Stock May Have A Hot Start In 2020

Summary

• The stock has risen by more than 36% in 2019.
• Options betting suggests the stock rises through the middle of January 2021.
• The stock's valuation appears modestly priced at current levels.
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Procter & Gamble (NYSE:PG) shares have risen by more than 36% in 2019, and some are betting the strength of 2019 will carry over into 2020, with the shares rising another 6%.

Meanwhile, the stock's valuation, although on the upper end of its historical range, doesn't appear to be egregiously priced. It suggests that the equity could climb without carrying a valuation risk, especially when compared to peers.

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Data by YCharts

Valuation Seems Fair

Shares of P&G currently trade for roughly 23.8 times one-year forward earnings estimates. That is in line with peers such as Colgate (CL), and less than Church & Dwight (CHD) at 26.2. It is, however, more than Unilever's (UN) 19.5 and Kimberly-Clark's (KMB) at 19. It puts Procter's valuation in the middle of the range of its peers.

Additionally, when looking at Procter's historical valuation, it may be at the upper end of the range of 14.5 to 21 from 2015 to 2018. But again, the valuation is not significantly higher than previously guided and appears to reflect expectations for faster earnings growth out of the company. Currently, analysts are forecasting earnings growth of 9.1% in fiscal 2020, followed by 6.3% in fiscal 2021, and 6.4% in fiscal 2022.

Bullish Bets

Some traders are betting that the stock rises further in the weeks ahead too. The $120 calls for expiration on January 15, 2021 saw their open interest levels rise by almost 30,000 contracts on December 27. According to data provided by Trade Alert, the calls traded on the ASK, an indication they were bought, at the price of roughly $12.55 per contract. It means that for a buyer of the calls to earn a profit, the stock would need to rise to around $132.55, a gain of about 6% from the stock's price of about $125.25 on December 26.

The Technical Trends Are Strong

The chart shows that the stock has been climbing higher since May 2018 in a trading channel. The stock has traded sideways recently, moving to the lower end of that channel. It has created a bullish continuation pattern in the chart known as a rising triangle. It suggests that the stock rises above resistance at $125.75, and moves higher towards $134.

However, the relative strength index, which had been trending higher, is now reversing that trend. That RSI is forming a bearish divergence and suggests that the momentum longer term is shifting from bullish to bearish.

Additionally, if the stock fails to break out and falls through the uptrend, it seems possible for the shares to fall to around $112.

Procter & Gamble's stock has been hot over the past year, and it appears that it is likely to start the new year the same way.

Disclosure: I am/we are long UL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.