Today I am looking at three companies set to experience severe earnings weakness in 2015.
Vodafone Group
Due to enduring stress in key European marketplaces, not to mention the effect of heavy investment to turn around these ailing regions, telecoms giant Vodafone (LSE: VOD) (NASDAQ: VOD.US) is expected to punch another year of heavy earnings weakness in fiscal 2015.
The business saw the bottom line dip 13% in the year concluding March 2014, and this is expected to worsen this year with City analysts predicting a colossal 63% drop to 6.4p per share. And Vodafone could be considered an expensive pick given these forecasts, the business carrying a sky-high P/E rating of 38.2 times earnings.
However, I believe that the company has what it takes to hurdle these current travails and post terrific long-term growth, a trend which the number crunchers expect to kick in in fiscal 2016 with a 6% earnings uptick.
The telecoms firm has dedicated $19bn to boost organic growth through its Project Spring programme, a move which is allowing it to latch onto surging data demand worldwide by bolstering its 3G and 4G networks, as well as enhancing its reach in key emerging markets like India. As well, Vodafone is also splashing the cash to boost its position in tasty growth areas, including the triple-services entertainment sector in Germany and Spain.
BHP Billiton
Mining giant BHP Billiton (LSE: BLT) (NYSE: BBY.US) has undergone a severe transformation programme in recent years amid persistent stress across commodities markets. As well as hiving off assets to bulk up the balance sheet and de-risk the company, the mining giant has also scaled back capital expenditure and cut costs across the business to enhance the bottom line.
Still, the prospect of persistently-low commodity prices this year and beyond looks set to keep revenues — and consequently profits — growth under the cosh. BHP Billiton has seen earnings oscillate wildly in recent years, and the City expects the company to punch a huge 21% drop in the 12 months concluding June 2015 to 199.2 US cents per share.
It could be argued that a low P/E rating of just 11.5 times earnings fully reflects the risks associated with the company’s end markets. However, with supply flows expected to keep rolling beyond next year, and fresh data from Europe and China suggesting a prolonged slowdown in the global economy, I believe that BHP Billiton could be in line for significant earnings downgrades.
Royal Bank of Scotland Group
Under the leadership of chief executive Ross McEwan, bailed-out banking goliath Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US) has been pulling out all the stops to distance itself from the profligate and risk-fuelled administration of former head Fred Goodwin.
However, fears abound that the company’s aggressive asset-shedding programme is seriously undermining its growth prospects, and Royal Bank of Scotland is expected to see earnings slip 14% in 2015 to 32.4p per share alone.
Although the business changes hands on an ultra-cheap P/E multiple of 11.8 times, I believe that those expecting decent growth to any degree in the near future will be sorely disappointed as revenues across its core operations continue to struggle.
And Royal Bank of Scotland also faces the prospect of steadily-rising legal costs related to a multitude of alleged misdemeanours, from the growing list of claimants for the mis-selling of PPI, through to an investigation of impropriety relating to a 2009 rights issue. I believe that the bank is likely to remain a poor growth selection for some time to come.
