Earnings look ahead – Ocado, Tullow Oil, GlaxoSmithKline

A look at company earnings next week.

Source: Bloomberg

Ocado (full-year earnings 6 February)

The recent announcement of a deal to use Ocado technology for a major Canadian supermarket sent the shares flying. The firm looks to be successfully reinventing itself as a provider of world-class technology for online shopping, and arguably the potential is huge. The deal was the second within a few months, after it said it would build a warehouse in France for Groupe Casino. Ocado is expected to report a 11.6% rise in earnings, to 1.1p per share, while revenue is expected to be 14% higher at £1.45 billion.

The parabolic move in Ocado’s shares, driven by frantic short-covering, has petered out near £5.50. However, it continues to hold above the previous high of 478p, set back in the summer of 2015. If this continues to provide a base, then longs may be able to reap the rewards of further gains. The 2014 high at £6.23 is the next big level to watch.

Tullow Oil (full-year earnings 7 February)

Tullow is forecast to see a 90% rise in earnings for the year, but will still make a loss of 5.1 cents per share. Meanwhile, revenue is expected to be 28% higher at $1.7 billion. A recent trading statement indicated that cash flows were on the rise again, helped by the relentless surge in oil prices. Full-year production also rose to 94,700 barrels a day, from over 70,000 in 2016. Thus the firm’s position is becoming more secure, with debt being steadily reduced to $3.5 billion, down $1.3 billion. At 13.7 times forward forecast earnings, it is well below its two-year average of 26.5 times, while half the analysts covering the firm have upgraded their price targets in the past month.

Since July, the share price has seen a steady progression of higher highs and higher lows, so if the shares, now currently oversold on a daily chart, can create a new higher low above the November nadir at 160p then the uptrend is intact. A recovery would target 216p, and then run into the short-term descending trendline from the January highs, with the 2018 peak at 236p above this.

GlaxoSmithKline (full-year earnings 7 February)

GlaxoSmithKline (GSK) is expected to see a 1% fall in headline earnings, to 25.9p per share, while excluding exceptionals the figure is expected to surge 118% to 11.6p per share. Sterling’s recent appreciation against the US dollar (USD) has hurt performance, as highlighted in the recent trading statement. While the current price-to-earnings (PE) ratio is a rather high 27, this falls to a modest 11.8 for the forward PE. In addition, this latter figure is below the two-year average of 14.7. It should also be noted that the shares currently trade at a 47% discount to its peers, versus an average discount of 32% over the past two years, suggesting that the shares may enjoy relative outperformance versus a basket of its peers.

GSK shares currently hover above the £12.96 support level, with £12.70 below this as a possible further line of support. A bounce would need to move above the recent highs at £13.80, and ideally move above £14.00 to break the steep downtrend in place from the 2017 highs above £17.00.

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