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Earnings look ahead: Ocado, GlaxoSmithKline, Barratt Developments

Online supermarket Ocado, pharma giant GSK and housebuilder Barratt Developments publish figures this week.

Ocado (full-year earnings 5 February)

Ocado is expected to report a loss of 3.6p per share, while revenue is forecast to rise 11% to £1.62 billion. The average move on results day is 4.5%, with implied options pricing suggesting a move of 4.4%.

The big news for Ocado may not be the numbers, although given the number of deals signed in 2018, the outlook is much brighter here. Instead, shareholders will be keen to know whether the reports of a tie-up with Marks & Spencer (M&S) have any truth in them. A sale of the entire supermarket arm to M&S, leaving Ocado to focus on its technology, would be a big step, and certainly not something to be taken lightly. But transforming itself into a pure technology firm would help release it from the UK grocery market, something investors should find reassuring.

Ocado shares broke out of the October-December consolidation at the beginning of the year, and have pushed steadily higher since then. The £11.40 point is the next big level to watch, with previous support at £10.08 now forming resistance. A break below £9.50 would likely signal a move back towards £7.00.

GlaxoSmithKline (Q4 earnings 6 February)

Earnings at GlaxoSmithKline (GSK) are expected to fall 0.2% year-on-year (YoY), to 27.1p per share, while revenue is expected to rise 4.2% to £7.96 billion. Results day usually sees a move of 2.45% on average, and at present options pricing suggests a 1.7% move.

GSK's decision to spin off its consumer healthcare arm might seem odd, given the recurring revenues produced by the business, but it will satisfy many critics of GSK’s approach over the past few years. GSK has lagged behind AstraZeneca, despite the fact that both have benefited from a weaker pound in the past three years, primarily because the latter has done better in finding new breakthrough drugs to drive revenue growth. A change in chairman might also help shake things up, as Philip Hampton departs the scene after only four years in charge.

At 13.1 times forward earnings, GSK shares trade roughly in line with their two-year average, having fallen from 14.3 times at the beginning of the year to around 12.6 in December.

GSK shares have found it impossible to break above £16.00, with rallies to this area since 2013 finding resistance. Dips to £14.20 since October have found buyers, while of late the £15.50 area has been resistance as well.

Barratt Developments (first-half earnings 6 February)

The story surrounding the sector is well known to investors, combining cautious consumer spending, Brexit and the end of the Help to Buy scheme. With all this confronting the sector, it is not surprising that the Barratt Developments shares trade at a relatively low valuation. Net cash and a large land bank are strong positives for the firm, and with demand still expected to outpace supply for the foreseeable future there is little concern that Barratt will face any slowdown in sales.

At 7.8 times forward earnings, the shares are still well below their five-year average of 9.4, and while not as cheap as in late 2018, the multiple is still quite undemanding.

Barratt shares have rallied hard since the end of December, but now the price is back around the £5.55 area that has been resistance twice before in the past year. A breakout above here, ideally above £5.60, would target £5.77 and then £6.17.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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