Today I’m running the rule over three recent headline makers.
Book beauty
Stationery and magazines giant WH Smith (LSE: SMWH) has fallen 3% following its latest trading update released today. But I view this as nothing more than profit-taking following the share’s steady price ascent.
The retailer — which recently struck record peaks of 1,878p per share — advised that pre-tax profit surged 11% in the six months to February, to £80m. Although like-for-like sales at its High Street division were flat, this represented WH Smith’s best performance for years.
The impact of massive cost-cutting, coupled with huge investment in new products in recent years, is clearly paying off handsomely. And I reckon the stationer’s rolling store expansion scheme should also keep profits heading higher in the years ahead.
This view is shared by the City, and WH Smith is expected to print earnings rises of 7% and 8% for the years to August 2016 and 2017, respectively. I reckon subsequent P/E ratings of 19.2 times and 18 times are fair value given the exceptional progress of WH Smith’s turnaround strategy.
Time to cash out?
Like WH Smith, De La Rue (LSE: DLAR) also released bubbly trading numbers in midweek trading. But these better-than-expected results drove shares in the cash printer 10% higher from Tuesday’s close.
De La Rue announced that revenue for the period to March 2016 had been in line with expectations, adding that full-year underlying operating profit is now expected to ring in at £62m, beating its previous estimates. The company attributed this upgrade to the “strong operational outperformance on certain contracts within our Currency business.”
Despite today’s positive news, however, I believe that De La Rue remains a risky selection for stock pickers thanks to the impact of rising competition, and the potential for increasing revenue troubles in an increasingly ‘cashless’ world.
The City expects De La Rue to bounce from a 27% earnings slip in fiscal 2016 with an 11% bump next year. Some would argue that low P/E ratings of 13.2 times and 11.7 times fairly reflect the risks facing the money-maker. But I reckon the huge structural issues facing the firm still make it an unattractive stock selection.
Sales outlook still improving
A string of positive testing news has boosted the revenues picture for drugs giant AstraZeneca (LSE: AZN) in recent days.
The Cambridge firm received positive news yesterday after Clovis Oncology‘s lung cancer battler Rociletinib had been shot down by the US Food and Drug Administration. The news paves the way for AstraZeneca’s own Tagrisso treatment to dominate the market, the drug having received approval in the autumn.
AstraZeneca’s renewed efforts to rejuvenate its product pipeline are clearly producing the goods, with it also announcing this week that its Alzheimer’s product designed with Eli Lilly will proceed to Phase III testing.
Sure, the issue of patent expirations on key drugs is expected to keep earnings under pressure for some time yet — bottom line dips of 7% and 1% are currently pencilled-in by the City for 2016 and 2017, respectively. Still, I reckon consequent P/E ratios of 14.8 times and 15 times represent terrific entry points to get on board AstraZeneca’s ever-improving long-term outlook.
