Do recent declines make AstraZeneca plc, easyJet plc & Provident Financial plc a buy?

Roland Head looks at the latest numbers for AstraZeneca plc (LON:AZN), easyJet plc (LON:EZJ) and Provident Financial plc (LON:PFG) and asks whether the shares should be a buy.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

One of the biggest fallers in the FTSE 100 this year is AstraZeneca (LSE: AZN). Since hitting a high of 4,627p at the end of 2015, the shares have fallen by 15% to about 3,950p.

There’s been no real bad news from AstraZeneca to justify this fall, so what lies behind it? The quick answer is that earnings appear to be falling faster than expected. AstraZeneca hasn’t yet fully escaped from the cycle of falling profits caused by key products losing patent protection.

The firm’s earnings per share were flat last year and are expected to rise this year. However, analysts are pencilling-in a fall for 2017 and have also been trimming their forecasts for the year ahead.

Investing in AstraZeneca does require some faith that the firm will deliver some new blockbuster medicines to replace older products. This may end up taking slightly longer than expected. However, earnings are now stabilising and the 4.8% dividend yield now looks pretty safe. I’d say this could be a good time to build a long-term holding.

Will sub-prime continue to beat the market?

Finance company Provident Financial (LSE: PFG) specialises in providing banking and lending services to customers with poor credit ratings. This includes highly profitable short-term loans.

Some investors will have ethical concerns with this business, but for those that don’t, Provident has proved to be very successful. Earnings per share have risen by an average of 14% since at least 2010. Gains of about 10% are expected in 2015 and 2016.

Unlike the UK’s high-street banks, Provident is extremely profitable. The group has a return on equity of more than 30%. This helps to fund a generous dividend that’s doubled since 2010, and currently provides a 4.75% forecast yield.

Provident shares have fallen by 17% so far this year. They still trade on 16 times 2016 forecast earnings, which isn’t obviously cheap. However, if current growth rates can be maintained, Provident could still be a profitable buy.

Boost to dividends signals change

The most significant news in this week’s interim results from easyJet (LSE: EZJ) was that the firm will increase its dividend payout ratio from 40% to 50% of earnings.

This suggests to me that easyJet management believes the era of rapid growth is coming to an end. After quadrupling its profits in just six years, easyJet may be reaching maturity.

Overall, I’d say this is good news for shareholders. The shares already offered a forecast yield of 4.5% for 2016. This could now rise to 4.9% and should be some comfort for shareholders who’ve seen the value of their stock fall by 14% so far this year.

It seems pretty certain that budget airlines such as easyJet are here to stay. The only question is whether they’ll be able to avoid the periodic downturns that have historically made airlines such a poor investment.

We may not know this for a few more years, but in the meantime it’s worth noting that easyJet’s results suggest the group does have the potential to make further cost savings. With the shares now trading on a 2016 forecast P/E of just 10, I reckon now may be a good time to buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has recommended AstraZeneca. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

5 steps to start buying shares with under £500

Learn how this writer would start buying shares with a few hundred pounds in a handful of steps, if he…

Read more »

Young happy white woman loading groceries into the back of her car
Investing Articles

The FTSE 100 offers some great bargains. Is this one?

Our writer digs into one FTSE 100 share that has had a rough 2024 to date, ahead of its interim…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

£9,000 of savings? Here’s my 3-step approach to aim for £1,794 in passive income

Christopher Ruane walks through the practical steps he would take to try and turn £9,000 into a sizeable passive income…

Read more »

Group of young friends toasting each other with beers in a pub
Investing Articles

I’d buy 29,412 shares of this UK dividend stock for £150 a month in passive income

Insiders have been buying this dividend stock, which offers an 8.5% yield. Roland Head explains why he’d choose the shares…

Read more »

Red briefcase with the words Budget HM Treasury embossed in gold
Investing Articles

Could the new UK budget spell growth for these 6 FTSE stocks? I think so!

Mark David Hartley considers six UK stocks that could enjoy growth off the back of new measures announced in the…

Read more »

Investing Articles

With a 6.6% yield, is now the right time to add this income stock to my ISA?

Our writer’s looking to boost his Stocks and Shares ISA. With this in mind, he’s debating whether to buy a…

Read more »

Dividend Shares

This blue-chip FTSE stock just fell 12.5% in a day. Is it time to consider buying?

Smith & Nephew is a well-known, blue-chip FTSE stock with a decent dividend yield. And its share price just dropped…

Read more »

Investing Articles

At 72p, the Vodafone share price looks to be at least 33% undervalued to me

Our writer looks at a number of valuation measures to determine whether the Vodafone share price reflects the fair value…

Read more »