“Armchair Trader Series” Recommendations
- Week Beginning -
Monday, April 20, 2020

by Ian Harvey

IMPORTANT NOTE: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

You may also wish to read Stock Options Made Easy Trading Philosophy

ALSO

"Trading Capital Management"



Option Trade – Procter & Gamble Co (NYSE: PG) Calls

Thursday, April 23, 2020

** OPTION TRADE: Buy PG JUL 17 2020 125.000 CALLS at approximately $4.20.

Place a pre-determined sell at $8.40.

Also include a protective stop loss of $1.70.          

Preamble.....

Procter & Gamble Co (NYSE:PG) has become a hot stock to watch in recent weeks. The changes in consumer behavior brought about by the COVID-19 pandemic have sparked renewed interest in many of the consumer staples for which the company has become known.

Consumer products staple Procter & Gamble is fresh off an upbeat post-earnings reaction from Friday; with some of the numbers that Procter & Gamble shared related to the company’s third-quarter earnings were impressive, and others were simply stunning.

The consumer products giant recorded adjusted earnings of $1.17 per share, which reflected growth of 10.4% from the same period last year. Revenue of $17.2 billion rose 4.5% on a year-over-year basis. Analysts had predicted earnings of $1.11 per share on $17.4 billion in revenue.

Organic sales, barring the impact of foreign exchange, acquisitions and divestitures, climbed 6% courtesy of strong growth in the health care and beauty segments.

Coronavirus has caused products such as toilet paper and hand sanitizer to fly off the shelves. In this environment, one might expect a company like P&G to outperform.

Demand jumped across many categories as consumer’s prioritized cleanliness and ramped up stay-at-home time across Europe and North America.

In a statement, CEO David Taylor said:

"The strong results we delivered this quarter are a direct reflection of the integral role our products play in meeting the daily health, hygiene and cleaning needs of consumers around the world. Our organization has been doing a terrific job against our near-term priorities - protecting the health and safety of each other, maximizing availability of P&G products to meet heightened consumer need and helping society meet and overcome the challenges of this crisis."

Earnings.....

While the consumer goods manufacturer edged past earnings expectations, revenue lagged. The company cited a stronger dollar as the reason for the mixed results. Sales were driven higher as consumers bought large quantities of household items such as toilet paper, diapers and paper towels as a result of the coronavirus outbreak.

Numbers for things such as rising e-commerce sales and manufacturing production were great. And although there were major declines in sales for some P&G businesses, the company improvised and adapted its operations.

"We are in an unprecedented time in the world, and P&G people are stepping up in unprecedented ways," said Damon Jones, global communications chief for the company.

In March, P&G set records for volume of products made and shipped. P&G has operations in about 80 countries and sells products in more than 180.

P&G's largest North American plants produced and shipped 22% more cases in March than the monthly average of the previous year, said Jon Moeller, P&G’s chief financial officer and chief operating officer.

“The P&G supply organization delivered similar records across Europe, Latin America and other parts of the world,” Moeler said.

In addition, P&G’s e-commerce business grew globally about 35% in the quarter that ended in March, Moeller told market analysts during a conference call.

It’s now about 10% of our business globally,” Moeller said. “The two largest sources of growth by far are the U.S. and China, with some categories growing in e-commerce in those two markets as much as 50%.”

For fiscal 2020, Procter & Gamble is projecting sales growth of 3% to 4%, which is down from its prior guidance of 4% to 5%. The company cited headwinds from foreign currency as the reason for trimming its revenue forecast. It also forecasts that earnings will rise by 235% to 245% on a per-share basis.

The company said it will repurchase $7 billion to $8 billion worth of stock in fiscal 2020.

Analysts.....

There's room for more bullish analyst attention that could vault PG higher. Of the 21 brokerages covering the stock, 13 rate it a "buy" or better. However, 10 gave it such a rating three months ago, indicating this "buy" cycle analysts are in doesn't appear to be running out of steam anytime soon.

Procter & Gamble stock has recovered quickly in the past several weeks, while the S&P 500 still suffers double-digit losses year to date.

P&G continues to outpace the five-year average growth rates of peers such as Kimberly Clark and Colgate Palmolive, according to analysts' estimates.

So…..

In addition to the shares coming off a $300 billion market cap near the $121 level, earlier in the week PG broke out of a trendline connecting lower highs since late February. In other words, the blue chip has support in place to keep chugging toward the $140 level, which are conveniently double its 2018 lows.

Also, management indicated on the earnings call that they believe this change in sales is not temporary. Management described the head-turning scope of the recent demand spike. CFO Jon Moeller also predicted that, while short-term sales trends will be volatile, P&G is likely to benefit from a fundamental shift in consumption toward many of its product categories.


Option Trade – Wynn Resorts, Limited (NASDAQ: WYNN) PUTS

Tuesday, April 21, 2020

** OPTION TRADE: Buy WYNN JUN19 2020 65.000 PUTS at approximately $6.70.

Place a pre-determined sell at $13.40.

Also include a protective stop loss of $2.70.

Preamble.....

Wynn Resorts, Limited (NASDAQ: WYNN)'s business in China and Las Vegas has been impacted by the coronavirus pandemic. Although most of the casinos in Macau have resumed operations after coronavirus-induced shutdown, casino tables are still empty. However on the bright side, Wynn Resorts CEO Matt Maddox said that Las Vegas Strip could re-open in mid- to late May with extensive safety measures in place.

Following the news, Instinet cut its price target from $117 to $87, though it kept its "buy" rating. The analyst, Harry Curtis, cited the anticipated long recovery period for the company.

Following the news, Instinet cut its price target from $117 to $87, though it kept its "buy" rating. The analyst, Harry Curtis, cited the anticipated long recovery period for the company.

Owing to the ongoing coronavirus crisis, shares of the company have fallen 44.9% in the past three months, compared with the industry’s decline of 35.9%.

The Re-opening of the Las Vegas Strip.....

Wynn was the first casino operator to shut down, on March 18, and the resort is continuing employee payments, Maddox said. 

The company's operating expenses are running at $3 million per day for a period of two months, the CEO said. 

Nevada Gov. Steve Sisolak's shutdown order extends to April 30, with no specific date set for non-essential businesses to restart.

As of Sunday, the state's confirmed cases stood at 3,725, with 155 reported deaths.

Maddox said that part of Nevada's economy should start reopening in early May. In an effort to contain the spread of this deadly virus, the company’s Encore Boston Harbor and Wynn Las Vegas shut operation on Mar 15 and Mar 17, respectively. The company has been bearing operating expenses of nearly $3.5 million during the closure, excluding nearly $0.8 million per day of cash interest expense.

The company’s CEO also said “Begin with reduced occupancy, physical distancing measures in place, temperature checks and no large gatherings.” In order to adhere to precautionary norms, the company will spread out restaurant tables as well as slot machines.

As for Macau.....

A new policy from the Guangdong province of requiring all travellers coming from outside mainland China to undergo a 14-day quarantine at designated facilities is believed to be limiting traffic on top of the collapse of international traffic to the casinos.

JPMorgan says the Guangdong development is effectively the same as a "casino shut-down" for Macau, with almost every visitor needing to enter the territory through the land border due to the lack of inbound flights. The firm expects the tight borders to lead to a dismal April for the casino operators.

Earnings.....

Due to the coronavirus pandemic, the company’s results in first-quarter 2020 are likely to decline sharply. The company expects revenues in the range of approximately of $912 million to $969 million in the first quarter, sharply down from $1.64 billion in the prior year. The company anticipates adjusted property EBITDA in the range of nearly $58 million to $65 million, down from $484 million reported in the year-ago quarter.

Earlier, the company announced that the board of directors and top executives has agreed to forgo between 33% and 100% of their salaries in the light of the coronavirus-induced economic downturn.

So…..

Maddox notes the economy is in "free fall" and Nevada will be one of the states that is hit hardest because of high unemployment rates. Since the country has moved beyond "peak" hospitalizations at this point, he says, "it is imperative to flatten this curve so we can reemerge in a safe, sustainable way."

Wynn Resorts generates most of its revenue from Macao, China, and though resorts there have reopened, tourist and travel restrictions have caused visits to the city to virtually cease. Gambling revenue in Macao has declined 80% or more for the past two months.