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Earnings look ahead – Taylor Wimpey, ITV, Capita

A look at earnings this week.

Source: Bloomberg

Taylor Wimpey (full-year earnings 28 February)

Taylor Wimpey has already signalled that it will post a healthy set of numbers when it reports on Wednesday, so the reaction might be muted. However, the shares are still expected to benefit from healthy growth in the coming years, with 2018 growth at 9%, and at 4% in 2019. Housebuilder shares, such as Taylor Wimpey, continue to trade at remarkably low valuation levels, on a forward price-to-earnings (P/E) of just 8.7 times. A 7.6% yield, covered 1.4 times by cash generation, remains another attraction.

The recovery in February has seen the shares move back towards 190p, where it found support back in November. A turn lower from here would be bearish, and would target 189p and 183p. Further gains above 200p would head towards the 2018 peak at 211p.

ITV (full-year earnings 28 February)

The new boss of ITV is expected to lay out a new vision this week as the broadcaster looks to compete with the US giants Netflix and Amazon. ITV studios, the programming arm, now generates almost a third of ITV’s earnings. Performance in the advertising industry remains under pressure, but it is the looming competition from the US firms that should worry investors. Still, on a yield of 5%, the shares look interesting from an income perspective.

The shares have recovered from a November low near 140p. However, gains have been constrained by resistance at 174p, and 180p above this. A break above 185p is needed to stop the downtrend from the 2016 highs.

Capita (full-year earnings 1 March)

Capita's problems continue. The firm is expected to see earnings fall by a third this year and 3% next year. Turnarounds tend to cost money, and lots of it, so we can expect ongoing falls in earnings as the company looks to recover. The new chief has already said that the structure is too complex, so a simplification is likely on its way. At six times earnings, the shares are cheap, but they are cheap for a reason.

The shares trade at a fraction of their level of late 2015. So far, the price has found support at 151p, but there is little sign of a rebound. The bottom end of the recent gap lower, at 248p, is the first target, followed by 342p.

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