Earnings look ahead – easyJet, Royal Mail, AstraZeneca

A look at company earnings this week.

Royal Mail
Source: Bloomberg

easyJet (first-half earnings 15 May)

It has been a tough couple of years for easyJet, but it is beginning to look like the firm has turned a corner. Recent updates have been better, with improvements in both profits and dividends forecasted. Demand for cheap airline tickets remains robust, as does its expansion into new routes and hubs. Although Alitalia might be a big mouthful to swallow, it would give easyJet yet more routes as it continues its life-or-death struggle with rival Ryanair. At around 15 times forward earnings the shares are not too demandingly valued, with further room for growth. The firm is expected to report a 59% rise in earnings, although it is still expected to report a loss per share of 13p, while revenue is expected to rise 15.5% to £2.1 billion.

The shares have broken out from the £17.00 high that has held so far this year. The next resistance levels are £17.70, £18.46 and £19.28. Dips in the price should continue to find buyers, with £15.66 as near-term support and the 200-day simple moving average (SMA), currently £14.43, after this.

Royal Mail (full-year earnings 17 May)

Royal Mail shares have been gloriously unaffected by the broader market volatility, hitting new highs and rising by almost a third compared to the FTSE’s miserable 0.75% gain. The outgoing CEO has done much to transform the business, overseeing the group’s move into the private sphere and strengthening the balance sheet. In addition, she has struck deals with pay and pensions with the unions, while cutting back on staff and introducing automation. A renewed focus on parcels has aided performance as well, and with a yield of 4% and a forward price-to-earnings (PE) ratio of 15, the firm looks to be in a promising position. Royal Mail is expected to report earnings of 42p per share, down 5% over the year, and a 4% rise in revenue to £10.2 billion.

Having gained near 70% since the lows of November, some weakness is likely heading into earnings. Support is possible around £5.85 (close to the current rising trendline), followed by £5.49.

AstraZeneca (Q1 earnings 18 May)

Headline expectations are not promising for AstraZeneca, with a 43% drop in headline earnings for the quarter forecast, down to 55.8 cents per share, while revenues are forecast to decline slightly, to $5.3 billion. It is a case of ‘jam tomorrow, not jam today’, with 2018 expected to be a tough year overall. There are growth opportunities, including in serious illnesses such as cancer, while the improvement in China continues to provide a boost to growth. AstraZeneca is not cheap at 21 times earnings, but it does have some reasons to be positive.

While the shares continue to record higher lows, the price has been unable to break firmly above the November high at £52.74. Further declines will see £46.90 tested, and then the rising trendline at £45.42. Above £52.74, the June high at £55.19 comes into play.

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