Earnings look ahead – Barratt Developments, Next, Morrisons

A look at earnings next week.

Source: Bloomberg

Barratt Developments (Q3 trading statement 10 May)

Barratt’s recent update said that the firm had a good first half, as a result of a strong order book and solid consumer demand. Earnings are expected to keep growing in the 5%-6% range, and with a dividend of 7.8% for the current year, and at just 8.6 times forward earnings, the firm still looks to have plenty of solid demand behind it.

The price has stabilised, finding a low at £5.13, but while it has bounced from there, it has yet to take out the £5.77 high from February. A move above here, and ideally above £5.80, would signal a clearance of both horizontal resistance and the trendline resistance from the October highs.

Next (Q1 trading statement 10 May)

Next's trading update should contain plenty of confidence, despite the recent poor run of data on UK clothing sales, as the firm makes improvements to its previously hit-and-miss stock controls. The confidence also likely stems from an improvement in market share, and the online division is likely to have outpaced the high street arm, in a similar fashion to how ASOS and Boohoo bested the high street names. At 12.3 times forward earnings, the shares are expensive relative to their two-year average of 11.2, but are still cheaper than the 17.2 for its peers.

The steady uptrend in Next from the July lows has faltered at £52.59 since the beginning of the year, but even a move above this would target £53.55, the high from October. Still, it continues to create higher lows, and any pullback towards £47.00 would still be a buying opportunity. 

Morrisons (Q1 trading statement 10 May)

This update will take place in the shadow of the Asda-Sainsbury's news, which, if it passes, will make Morrisons a bit-part player compared to the giants of Tesco and Asda/Sainsbury’s. Either it has to look to a merger with another player, or expand further in areas such as wholesale. Or, it could simply throw itself on the mercy of Amazon… Morrisons might stand to gain the most in some ways from a merger of the two, picking up some stores, but overall it will have a tougher time if the merger does go through.

Morrisons has undergone a stonking recovery since the end of March, pushing firmly above the 238p high from January. From here, 254p comes into play, a level not seen since August. A break back below 230p is needed to put a really bearish outlook on the price. 

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