Earnings look ahead – Shire, RELX, Galliford Try

A look at company earnings this week.

Source: Bloomberg

Shire (full-year earnings 14 February)

Pharmaceutical giant Shire has been in the news of late as bid rumours swirl, but brokers remain sceptical that the firm will be taken over, due to its specialty drugs businesses. These niche products would tend to suggest that any competitor attempting to enter the sector will face significant barriers to entry. We look for further commentary on the Baxalta integration, which at the first-half stage was progressing well. At just ten times forward earnings there looks to be plenty of value left in the shares.

There has been only one approach where Shire’s price action has been concerned, namely to sell the rallies. An attempt to break back above £40 failed in December, and then we saw the £35 zone taken out. A daily close above £40 would be needed to reverse the bearish picture, and unless this happens, stochastic moves into overbought territory should be regarded as potential indications of a selling opportunity.

RELX (full-year earnings 15 February)

RELX may not be the most exciting company in the FTSE 100, but steady dividend growth remains a key attraction. Payouts are expected to grow for the 2017, 2018 and 2019 financial years, as product improvement and expansion into new areas of the globe, combined with selective acquisitions, improve earnings. In addition, the dividend is covered twice over, so there will be few worries about its sustainability.

One of the smoothest uptrends in the FTSE 100 has taken a severe knock, with two rising trendlines lost over the past six weeks. While the price is attempting to rebound, the September 2016 high at £15.13 and then the September 2017 low of £16.01 are key hurdles. It will need to clear £16.70 to really suggest that the rally is back in action.

Galliford Try (trading update 14 February)

Galliford Try's update is likely to contain at least a passing reference to Carillion, which the company was working with on a road bulding scheme in Aberdeen. But the main meat will be commentary on how forward sales are progressing, along with the current state of selling prices. A strong yield of over 8% will attract many, but the shares have underperformed the sector over the past year, which will undoubtedly raise a red flag for some investors.

The break of support at £11.35 sent the shares to their lowest level since the Brexit vote, with little sign of a recovery so far. If £9.61 does hold, the potential for a rebound to £11.35 exists, but given we have seen a sequence of lower highs since March 2017, any sustained rally that fails to clear £13.50 would still be a selling opportunity.

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