Earnings look ahead – ITV, Lloyds, Barclays

A look ahead to company earnings next week.

Source: Bloomberg

ITV (first half results 26 July)

ITV hit the news recently for poaching easyJet’s CEO as tis new boss. However, the interest in the firm goes beyond changes at the top. The stock has recently been upgraded by Morgan Stanley, on the basis that it is, at 11.5 times current earnings, the cheapest of the European media stocks. Advertising is set to improve as the firm moves through its second quarter, and while ad revenues aren’t quite the ‘be all and end all’ that they once were, it is still a vital part of the investment case for ITV. Morgan Stanley boosted its target price to 230p.

The decline through June seems to have run its course, with a rally off the 174p level. However, we need to see a move above 186p to create a new higher high, and then move on to take out 200p. Below 174p the shares target the November low around 160p.

Lloyds (first half results 27 July)

Investors in Lloyds will have been cheered by the news in May that Neil Woodford, star UK fund manager, had taken a stake in the firm. The case for Lloyds rests on its dividend and on its dominance of the UK market. Mortgage demand remains relatively robust, and the apparent diminution of the chances of a UK rate rise in the foreseeable future will have probably tempted more to consider either buying a property or remortgaging. Meanwhile, the yield looks strong at 6%, and recent improvements in UK retail sales help lessen worries about a squeeze on consumer incomes. At 9.4 times forecast earnings, its outlook does not look too demanding.

The steady rally from the Autumn 2016 lows goes on, with the latest higher low in June being followed up with more buying. A move above the 50-day simple moving average (SMA) at 68.5p would then clear the way to 71p and 73p. It would take a close below the 200-day SMA at 24.7p to put more of a dent in the trend, although even then we would still need a daily close below 61.8p.

Barclays (first half results 28 July)

Recent coverage of the bank has been dominated by the Serious Fraud Office’s (SFO) trial of senior executives relating to the Qatari investment in the bank during the financial crisis. Given how weak trading revenues have been for US banks recently, Barclays will be closely watched for similar signs. However, its forward price to earnings (PE) of 10.4 is more attractive than the 12.4 for comparable firms, providing a greater margin of safety in valuation terms.

The broad direction of travel has been lower since the peak in February, and the most recent lower low of June at 194p was followed by a lower high at 213p. Now it appears the move lower is underway once more, with a drop below 194p likely to target 176p. A close above 220p is needed to reverse the bearish outlook.

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