Earnings look ahead – Taylor Wimpey, Marks & Spencer, Tesco

A look at key trading statements next week.

Source: Bloomberg

Taylor Wimpey (Q4 trading statement 10 January)

The housing market remains resilient, despite signs of weakness in London, with recent data showing a drop of 0.5% in 2017 for the capital’s house prices. The upcoming trading statement should shed more light on how the sector overall is performing. At the end of December the industry was hit by news that the government will ban the sale of leasehold homes, but, with Help to Buy still supporting the market, the outlook remains encouraging. At ten times forward earnings, Taylor Wimpey remains cheaper than the broader sector, which is currently trading on a forward multiple of 16. In addition, it has an expected yield for the year of 2.2%, versus 1.4% for its two-year average.

Taylor Wimpey shares have finally done it, returning to the 211p level seen before the Brexit vote in 2016. The trend higher has been steady and consistent, with each higher low provoking a fresh round of buying. The next level to watch is 223p, being the previous support from 2004. Any pullback that remains above 190p remains a buying opportunity. 

Marks & Spencer (Q3 trading statement 11 January)

We have already had the dizzying highs and terrifying lows from UK retailers, as good news from Next was followed by a dire performance from Debenhams. Hopefully, Marks & Spencer (M&S) will be somewhere in the middle. The firm is still adjusting to the new leadership of ‘Turnaround King’, Archie Norman, but it looks like we will see more store closures as it looks to cut costs. A decent performance from the unloved clothing division could help restore sentiment, but in truth, M&S management and shareholders look to be in for an extended period of tough times, with both food and clothing sales under pressure. Nonetheless, at 11 times forward earnings the shares are not unduly expensive, and while the 6% dividend is attractive, it is starting to look a bit high and thus vulnerable to a cut.

Shares in M&S continue to respect the downtrend from the 2015 high, with rallies providing fresh opportunities for selling, as we saw in May and October 2017. The price has rallied off support at 307p, with 296p below this and then down to 256p. 

Tesco (Q3 trading statement 11 January)

As we look to the Tesco trading statement, at least the market doesn’t have to worry about clearance for the Booker takeover, with the Competition and Markets Authority (CMA) waving it through at the end of December. Now, the focus returns to whether the firm can show an improvement in the vital like-for-like sales measure. Tesco is expected to see growth of 2.4%, but it may have achieved this at the expense of margins, in which case any bounce in the share price could be limited. At 16.6 times forward earnings, the shares are neither cheap nor expensive, but only just below the sector average of 17 times, providing little compelling incentive at present.

While it has not been a smooth ride, Tesco shares do at least continue to clock up new higher lows, indicating that the trend is still upwards. The latest drop to 175p was followed by a substantial rally, but it requires a close above 219p to record a new higher high. The areas of possible support would be 193p, and then the post-December 2015 rising trendline.

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