Today I am looking at whether the following FTSE 100 stalwarts are primed for explosive earnings growth in 2015.
Morrisons
Despite the relentless fragmentation of the British grocery market, City brokers expectbeleaguered mid-tier operator Morrisons (LSE: MRW) to post a solid recovery from next year onwards.
Current forecasts indicate that the company will punch a colossal 51% earnings decline in the year concluding January 2015, to 12.4p per share. But a meaty 11% bounceback is anticipated for the following 12-month period, to 13.8p per share.
But as Tesco’s (LSE: TSCO) latest financial update showed, the effect of significant price cuts across the store is doing little to grab sales back from the discount chains. Instead such schemes are simply eroding margins and thus forcing the established grocers from scaling back investment in other areas which are key to resuscitate growth.
Given these concerns, I believe that Morrisons’ P/E ratings of 14.4 times and 13.8 times prospective earnings for fiscal 2015 and 2016 correspondingly — although within the watermark of 15 times which represents attractive value for money — remain too expensive given the lack of earnings catalysts. In my opinion the Bradford chain is likely to struggle massively to stave off continued losses in the medium term at least.
Persimmon
Britain’s housing sector received a shot in the arm last week when Chancellor George Osborne elected to slash stamp duty for 98% of the country’s homebuyers. And for the likes of construction play Persimmon (LSE: PSN), expectations of ultra-low interest rates well into 2015 — and potentially beyond — as well as a rising supply/demand crunch are likely to drive earnings skywards.
Indeed, the City’s army of analysts expect the company to punch bottom line growth to the tune of 22% in 2015, to 146.1p per share and following an expected 43% advance this year.
Consequently Persimmon sports a P/E rating of just 11.2 times next year, peeking just above the bargain benchmark of 10 times or below. On top of this, the builder’s terrific value is underlined by a price to earnings to growth (PEG) readout of just 0.5 — any reading under 1 is widely regarded as too good to pass on.
Babcock International Group
Engineering outsourcer Babcock International (LSE: BAB) continues to benefit from a solid order book, a promising precursor to future earnings growth and which has been bolstered by a number of shrewd acquisitions in recent years. On top of this, the company’s on high margin operations also allows it to generate a healthy bottom line.
The business has seen earnings expand at a compound annual growth rate of 11.6% during the past five years, but City analysts expect Babcock to post a rare earnings slip during the year to March 2015, with a 3% drop currently expected to 68.2p per share. However, a resolute 16% rebound is estimated for fiscal 2016 to 78.9p.
And this robust recovery drives a P/E rating of 16.7 times predicted earnings for this year to a much more delectable 14.5 times for fiscal 2016. And Babcock’s improving value is echoed by an excellent PEG rating of 0.9 for next year.
