Today I’ll be discussing the outlook for pharmaceutical giant AstraZeneca (LSE: AZN), satellite broadcaster Sky (LSE: SKY), and airline group International Consolidated Airlines Group (LSE: IAG). Should you be risking your money on any of these shares?
Deutsche or Goldman?
It was quite interesting to see Deutsche Bank reiterate its buy recommendation for AstraZeneca on Friday, with quite an optimistic target price. The German investment bank has given the drugs giant a target price of £56, a significant premium on the current price of around £41. In complete contrast, US investment bank Goldman Sachs recently reiterated its sell recommendation on the stock, with a target price of just £37. So do I agree with our EU partners or am I backing the ‘special relationship’ with this one?
Given the consensus earnings estimates of 281.06p and 275.86p for this year and next, Deutsche’s £56 target price would leave Astra trading on 20 times forecast earnings for both 2016 and 2017. Furthermore, the forecast dividends of 195.29p and 195.99p would give prospective yields of 3.5% for both years. Using Goldman’s £37 target price we would get a price-to-earnings (P/E) ratio of 13, and dividend yield of 5.3% for the next couple of years.
Neither really! Looking at Astra’s historical P/E ratings and dividend yields, I believe the shares are currently trading at fair value, with earnings multiples of 15, and dividend yields of 4.7% for the next two years. I can’t see much upside potential in the share price, but income seekers should find the well-covered dividends appealing.
Profits moving Sky-wards
TV broadcaster Sky reported a strong set of results last week as it announced its third quarter update for the nine months to 31 March. Operating profit was up 12% to £1.14bn, revenues up to £8.72bn, and 177,000 new customers added in the third quarter.
Market consensus says Sky should enjoy a good period with an 11% rise in earnings expected for the year ending 30 June, but analysts expect a 6% decline next year. This would leave Sky trading on a forward P/E ratio of 15.5 for this year, rising to 16.5 for fiscal 2017.
The shares look fully valued, and the 3.5% forecast dividend yields are no more than average for a FTSE 100 blue-chip. So no bargains here I’m afraid.
Not to be missed
It’s now thought that the ‘drone’ believed to have hit a British Airways flight just over a week ago may have actually been just a plastic bag! Hmmm, maybe the media should have waited for the facts before broadcasting the original ‘story’ around the world. But then again, why let the facts get in the way of a good story?
Despite the almost catastrophic ‘incident’, the owner of British Airways, International Consolidated Airlines Group, is expected to have an excellent year in 2016, as City analysts have pencilled-in no less than 50% earnings growth, with a further 12% earmarked for 2017. This would leave the shares trading on a very attractive valuation of just six times forecast earnings for this year and next, with prospective dividend yields in excess of 4%.
The valuation is extremely attractive for both bargain hunters and growth investors given the low P/E rating and excellent growth prospects, but income seekers should also find the well-covered dividends appealing. At current levels the shares are an absolutely irresistible bargain and shouldn’t be missed.
