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Dixons Carphone shares in strong form ahead of first-half earnings

Shares in Dixons Carphone have rallied hard since March, and look strong ahead of first-half earnings. But is a longer-term downtrend about to come into play?

When is Dixons Carphone’s earnings date?

Dixons Carphone publishes earnings on 16 December, covering the first half of its financial year.

Dixons Carphone earnings – what to expect

The group is forecast to report a 5% drop in adjusted earnings per share (EPS), to 10.3p, while revenue is expected to fall 6.5% to £9.51 billion. It has beaten earnings estimates in four of the last six reports, but missed on earnings in four of the previous six.

The firm has done well since March, especially given its position in the retail sector. From a 50p low the shares have recently hit 120p, the highest level in eight months. Despite the sluggish performance of Carphone Warehouse, Dixons itself has done well from a re-equipping of home offices during lockdown, and it is even managing to hold its own against Amazon. Its Nordic business is dominant in its home market, and continues to provide plenty of cash for the overall group.

At around 10 times adjusted earnings the shares trade on an undemanding valuation, but it will have to work hard to improve its online offering, and even then it will be a while before the online arm turns profitable.

How to trade Dixons Carphone earnings

The average move on results day is 4.7%, but current options pricing points towards a 9.3% move. Of the nine analysts covering Dixons Carphone, five have ‘buy’ recommendations, with three ‘holds’ and one ‘sell’.

Dixons Carphone share price – technical analysis

The post-March recovery has been an impressive one, as the shares have carved out a series of higher highs and higher lows since the end of April. November’s rally to 120p was followed up by a pullback, but this brief dip below the 50-day simple moving average (SMA) of 107p has been met by fresh buying.

Certainly the near-term trend is encouraging, and the shares do not look overextended ahead of results. But on a weekly chart the picture is less encouraging, and the possibility of disappointment could see some of the recent gains given back.

Traders need to pick their time frame and manage their risk. A rally above 120p would bolster the bull case but it would still need to clear 160p to create a new higher high on the weekly chart. Meanwhile, bears will want to see a reversal below 100p that amplifies the argument for a lower high and further declines.

Dixons Carphone – good job so far, but what next?

In the short term the group has done a lot of good work to shore up the business, and the arrival of a Covid-19 vaccine helps brighten the outlook. But there is still work to be done to really cement its place online. A positive daily chart outlook conflicts with the weekly downtrend, providing ammunition for both bulls and bears.

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