After a tough time, analysts expect a big earnings bounce for this FTSE 100 stock

Will earnings really double by 2026? Well, that’s what the City analysts think could happen with this FTSE 100 company.

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The share price of today’s FTSE 100 pick is down 30% from its peak of late 2021.

Underlying earnings slumped in 2022, before regaining a little in 2023.

But now, forecasts suggest earnings per share (EPS) should more than double by 2026, which would drop the price-to-earnings (P/E) ratio to only 8.6.

That’s low by FTSE 100 standards, so which company is it I’m talking about? It’s LondonMetric Property (LSE: LMP).

Property slump

Like with other stocks in similar businesses, the slowdown is behind the recent pain. But also like related stocks, I think the market overreacted and pushed the shares down too far.

Markets do that a lot. And it leads to the kind of uncertainty that can have big City investors biting their knuckles. But I love it, because it can give patient private investors like us the chance to buy in cheap.

But the low P/E valuation isn’t the thing I like most about LondonMetric. No, that’s the dividend yield. It’s currently forecast at 5.2%, and it kept it going through the past few tough years.

This is the kind of business that can do that, and can even out its dividends even if profits are up and down in the short term.

Real estate

The company invests in and develops a range of commercial real estate, including retail parks, distribution facilities, offices… and other things, including some residential property. And it gets its income mostly from rental leases.

It’s quite easy to see how such a business could hurt during a global pandemic and lockdowns. And again when inflation soars, pushing interests rates through the roof.

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More trouble

Even though forecasts show things looking up, it doesn’t mean LondonMetric is in the clear now.

No, real estate investment trusts (REITs) often run on high debts to buy property. That’s more expensive to do now. Couple that with retailers and other business customers facing a squeeze, and it’s clear that an economic downturn could hit a firm like this harder than many.

In the year to March 2024, LondonMetric’s gross debt just about doubled, to nearly £2.1bn. But it put its property asset values at around three times that following a couple of acquisitions.

And, more importantly, we must be fast approaching the other side of high interest rates now. We might only see one cut this year. But it would be a nice start.

Cash ahead

The dividend is by no means guaranteed. And I really think it’s what keeps most shareholders aboard. We still face property risk. And should the company not be able to keep the dividend cash going one year, I reckon we might see a share price collapse.

But at FY time, CEO Andrew Jones spoke of “confidence to increase our Q1 dividend for FY 2025 by 19%“.

He added: “We are fully aligned to shareholders with a shared mission and will be ruthlessly efficient in how we operate our business and how we allocate capital in our quest towards dividend aristocracy.

Dividend Aristocracy has to be worth considering, I reckon.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended LondonMetric Property Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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