Earnings look ahead – Vodafone, Shell, AstraZeneca

A look at key earnings this week.

Source: Bloomberg

Vodafone: Q3 trading update 2 February

Vodafone’s India news has already given the shares a big lift, potentially reversing the recent downtrend, but there is still more detail to be uncovered. The focus will be on whether the performance of the European division will be sufficiently robust to offset weakness in emerging markets. The shares have suffered downgrades of late, with brokers airing concerns that key regions in areas such as Africa, the Middle East, Asia and the Pacific will suffer lower growth. Nonetheless, the attraction of Vodafone is as an income stock, and a yield of nearly 6% does at least help to offset the lack of capital growth from the shares.

There should also be further commentary on the India deal, which looks to create a major player within the key Indian market.

The Autumn sell-off in Vodafone shares saw the price slump from 230p to around 188p, bring them to their lowest level since mid-2014. Here buyers came back, which indicates that this is a definitive area of support. The India news put the shares back on an upward path, towards 200p, with the early January high at 216p the next target. 

Shell: Q4 earnings due 2 February

Few believed Shell would post such a remarkable return in 2016, but the rebound in the oil price naturally had a beneficial effect on the oil sector. The firm is expected to report a major rebound in profits, with over $8 billion in earnings expected, versus $3.8 billion a year earlier.

In addition, the firm is also expected to announce the sale of $3 billion in assets from its North Sea activities, marking a significant withdrawal from this area. Margins have been steadily lifted by the recovery in oil prices, with an increase in cost cutting resulting in the breakeven price for oil companies dropping to $50.

The chart for Shell provides an elegant lesson in the art of trend-following. A low in January 2016 below £13 marked the bottom, and since then there has been a series of higher highs and higher lows. We could be seeing a new higher low as the earnings loom; £21 marked a peak in the summer and October/November, so if this holds a return to £23 could be in the offing.

Even if it drops below £21, as long as the price holds above the 200-day simple moving average (SMA) the uptrend remains intact. 

AstraZeneca: full-year earnings 2 February

Pre-tax profits at AstraZeneca are expected to fall 7% to $6 billion for its full-year, while revenues are expected to fall by 6%. Increased competition for key brands such as its cholesterol drug Crestor is likely to weigh heavily on performance.

Investors will thus be on the lookout for hints that the new drug pipeline remains strong, and in addition the firm’s ‘externalisation’ revenue (milestone and royalty payments for assets sold) will be a key point of interest.

Astra shares soared post-Brexit, but since then the wheels have come off. They bottomed just below £40 in early December, and have held above this low so far in 2017. A first target in a move higher would be the 200-day SMA at £44.91, and then to the January peak above £46. Below £40 the shares could head towards the June lows at £36.84.

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