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Earnings look ahead – Marks & Spencer, Sainsbury’s, AstraZeneca

A look at company earnings next week.

Marks & Spencer
Source: Bloomberg

Marks & Spencer (first half earnings 8 November)

It has not been an easy time for retailers, with Next last week giving everyone a fright. Marks & Spencer (M&S) suffered in the read across, and with its clothing line still not able to deliver the goods, it will be up to the food arm to be the group’s salvation. However, here too, times are getting tougher, and with a consumer squeeze in full flow for UK shoppers, M&S’s premium offering could well come under further pressure. At 11.9 times forward earnings the shares are not too aggressively rated, but perhaps the current valuation underrates the problems facing Steve Rowe, M&S’s CEO. Earnings per share (EPS) are forecast to fall 16.00% year over year (YoY), to 9.7p per share, while revenue rises 1.9% overall, to £5 billion.

Despite a mid-year rally, the shares continue to trade in the 313p – 360p range. A rally in September took us to the top end of the channel, before turning lower once again. If 313p is broken, then the June 2016 low at 256p could be a longer-term prospect. A move above 360p targets 391p and then 408p. 

Sainsbury’s (first half earnings 9 November)

While sales may be increasing, Morrisons' results last week underlined that the consumer squeeze continues, and Sainsbury's figures this week may well show this too. The decision to acquire Argos certainly shook up the market, but has not had the catalysing effect on the share price that may have been hoped. Around £1 billion in cost savings is expected in coming years, but overall the conundrum of how to boost earnings in a time of weaker consumer spending has yet to be solved. At 11.3 times forward earnings, it is cheaper than peers (16.8) and below its two-year average of 12.1. Sainsbury’s is expected to report earnings of 66p per share, down 21% over the year, while revenue is expected to rise 17% to £14.9 billion.

The shares have faltered, dropping back from the October high at 250p, and now the key 230p zone looks to be in play. Below this the 211p area is next. A rally needs to clear 250p and then move to the August high at 254p. For now, price action suggests further consolidation. 

AstraZeneca (Q3 earnings 9 November)

AstraZeneca has laboured through years of patent expiries, but investors have been happy to stick with the shares, especially since the dividend has remained in place. However, it continues to do new deals, and its mergers and acquisitions (M&A) moves in recent years should begin to bear fruit with new product launches. A healthy 4.3% yield helps to maintain the shares’ attractiveness.

The march higher in recent years has been choppy, with wide swings, but overall the uptrend is intact. A recent attempt to break £52.74 was knocked back, so possible support at £50.00 and then the 200-day simple moving average (SMA) at £48.55 now comes into play. Above £52.74 the price will target the June high at £55.19.

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