Earnings Lookahead – Ocado, Barratt Developments, Burberry

A look at company earnings next week.

Source: Bloomberg

Ocado (first half earnings 10 July)

Ocado is expected to report a 12.5% rise in revenues for the first half, to £803 million, while earnings are expected to be up 3.2% to £45.6 million. The recent surge in the stock has been driven by the firm’s success in reinventing itself as a technology firm that can provide its expertise to others, a move exemplified by the recent deal with US giant, Kroger. Bernstein estimates that the grocery ecommerce market will be worth $162 billion by 2025, while Goldman Sachs thinks the global revenue pool that Ocado can address is worth around $250 billion. Discussion of sales performance in the UK is now mostly academic for Ocado, as it will be hints of further technology deals that will dominate the story now.

Ocado shares have surged since April, as shorts are cleared out thanks to news of technology deals. Since the all-time high of £11.42 in June, the shares have dropped back, moving in a tight range. A swift drop in early June found buyers around £9.17. Any renewed move higher targets the all-time high.

Barratt Developments (Q4 statement 11 July)

Recent housebuilder updates have erred on the side of caution, but with demand still solid and government help schemes still in place the story remains much the same for housebuilders. The low valuation, of just 7.2 times earnings versus a five-year average of 8.2, suggests plenty of bad news is still priced in. One key metric to watch will be margins, which may well drop slightly if inflation continues to rise. 

Barratt shares have hit a 15-month low recently, and a daily close below 485p would be a very bearish development. A rebound could see a move back towards £5.13, and then on to the descending trendline resistance from the 2018 high, which would see £5.60 come in as possible resistance.

Burberry (Q1 statement 11 July)

As Burberry currently trades at a 35% premium to its peers, this week’s trading statement will need to have plenty of good news in it to avoid a sell-off. However, with trade wars dominating the news and fears of a Chinese slowdown remaining high, Burberry may have to take a cautious approach. Given that it also trades at 25.5 times forward earnings, versus a two-year average of 20.7, the shares do look rather vulnerable.

The shares have gained impressively over the past quarter, rising to a high for the year of £21.74. A pullback since then has moved close to, but not tested, possible support at £20.23. Below here, £19.29 and then £18.38 come into view.

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