Today I am looking at the share price prospects of four recent big-cap blasters.
Reckitt Benckiser Group
Household goods giant Reckitt Benckiser (LSE: RB) has staged an impressive recovery after emerging market concerns forced a washout during much of August. Shares have advanced 1% in the past seven days despite strong risk-aversion in start-of-week business, and I believe the firm should maintain its broad multi-year uptrend as consumer spending power pushes higher across the globe.
Helped by the formidable pricing power of labels from Durex condoms and Finish dishwasher tablets through to Nurofen pain relievers, Reckitt Benckiser’s market-leading products provide brilliant earnings visibility even in times of wider macroeconomic troubles.
Consequently the business is expected to record growth of 3% in 2015 and 2016, producing elevated P/E ratios of 24.2 times and 22.6 times respectively. But I believe the firm’s exceptional long-term growth prospects — boosted by the likelihood of further M&A activity, particularly in the lucrative ‘consumer healthcare’ segment — fully merits this premium.
Ashtead Group
After a spritely recovery from August’s troughs, souring investor appetite has pushed shares in power generator provider Ashtead (LSE: AHT) south again and the shares are 5% lower than levels a week ago. However, I believe this represents a fresh buying opportunity and fully expect shares to chug higher again, underpinned by the strong momentum of the US and British construction sectors.
Although problems in the oil and gas sector remain a worry, market share grabs by its A-Plant and Sunbelt brands are helping to cushion pressures on the top line — indeed, rental revenues leapt 20% during May-July, driving pre-tax profit 23% higher to £160.7m.
Thanks to its leading proposition across a multitude of markets, the City expects Ashtead to keep earnings growing with advances of 24% and 16% pencilled in for the years ending April 2016 and 2017 respectively. Such figures suggest the firm remains undervalued, producing ultra-low P/E ratios of 12.6 times for this year and 11 times for 2017.
HSBC Holdings
Banking goliath HSBC’s (LSE: HSBA) recovery during the past few weeks has been far more modest, and consequently insipid investor appetite in the week to date has erased gains of the previous seven days — the bank was recently 4% lower from last Tuesday’s close.
And there is still plenty of uncertainty swirling around the bank to suggest that further volatility could be in the offing. From renewed fears of economic slowdown in its critical Chinese marketplace, through to rising financial penalties owing to previous regulatory misdeeds, there is no guarantee that ‘The World’s Local Bank’ will pull clear in the near future.
But over the long-term I believe HSBC remains a terrific long-term banking bet. The company’s premier position in the growth hotbeds of Asia — not to mention hefty presence in North America and the UK — should keep revenues pounding higher, while extensive cost-cutting is also creating a more efficient, earnings-generating machine for the years ahead. With the firm expected to see bottom line growth of 18% in 2015 and 2% in 2016, HSBC sports ridiculously-low P/E ratios of 9.6 times and 9.2 times for these years, providing plenty of reason for investors to pile in.
Smith & Nephew
By comparison, shares in artificial limb and joint builder Smith & Nephew (LSE: SN) have remained far more resilient and are actually fractionally higher from the same period last week. And with good reason — rising healthcare investment the world over promises to keep revenues heading northwards for the foreseeable future, a trend Smith & Nephew is latching onto by selective purchases in both established and developing regions.
Indeed, sales in emerging markets continue to advance at a double-digit rate, Smith & Nephew advised in July, territories in which the firm is aggressively building its presence. Meanwhile, effective turnaround measures at the company’s Advanced Wound Care is helping to power sales higher, while its Reconstruction business recorded its best performance for three years during January-June thanks to new product roll-outs.
Smith & Nephew is clearly a business ‘on the up’, and the number crunchers expect the business to hurdle a rare 2% bottom-line decline in 2015 and punch a stonking 13% improvement in the following year. While the business carries high P/E ratios of 21 times for this year, this falls to a far-more palatable 18.7 times for 2016. I believe the health specialists are brilliant value at these prices.
