They’re At The Post… And They’re SOGGY! (POST)

Today’s breakfast treat is brought to you by Weetabix, the phony, extruded-grain packaged edible with a deceptively high sugar content from POST Holdings Inc. (NYSE:POST).

Aw, go on, Al… you’re the clever one…

POST stock has had an extraordinary run, but the world is changing.

And foodstuffs of every variety are facing an unpredictable future.

And that means sooner or later, a pullback in the company’s shares is inevitable.

Our learned conviction is that time is now.

Check out the fundamentals –

• Post has a P/E of 11.45, a reasonable multiple in a market like this,
• She pays no dividend, and
• Sports a P/B of 1.49.
• BUT… EPS this year are down 33.90%, and
• EPS for the next five years are expected to be flat (-0.40%), according to consensus.
• Post also has a Debt/Equity ratio on the high side, at 1.76.

But it’s in the technical realm where we see the greatest evidence of a coming downside break.

Have a look –

Technically, we’re looking at –

1. Both RSI and MACD diverging south against price for nearly three full months (in green) – a harbinger of near-term weakness.
2. A bearish engulfing pattern (in blue) that emerged after yesterday’s trade.  This is very often a topping signal.
3. A gap down to 77 that has to be filled (in purple), and
4. Next support at the rising trendline at 78 (in red).
5. Waning volume over the last three weeks (in black) is proof positive that the bulls’ commitment is flagging.

POST will announce earnings on August 5^th, after which we expect a slide – if not before.

And we’re playing it like this –

A Jew and His Gold recommends you consider selling the POST September 16^th 80/85 CALL spread* for a credit of $2.20 (6.50/4.30) and buying the POST September 16^th 85/80 PUT spread for $2.70 (4.70/2.00).  Total debit is $0.50.

[*Sell the 80 CALL and buy the 85 CALL.  **Buy the 85 PUT and sell the 80 PUT.]

Rationale: max gain on the trade is $4.50 NET on an outlay of $0.50.  That’s a potential winning of 900%.

Max loss is $5.50 (difference between the CALL strikes plus the initial debit).

We see a potential quick turnaround on this one.

With the broad market advancing strongly in in the last five sessions, POST shares have been oddly flat.

We believe that’s an ominous sign.

But the G-d of Israel will decide.

Many happy returns!

Matt McAbby

Follow @HughLOHaynew