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J Sainsbury plc Results Could Shock, But BT Group plc Is Looking Good

We have two important sets of results coming our way next week, and I see very mixed fortunes.

J Sainsbury (LSE: SBRY)(NASDAQOTH: JSAIY.US) is set to deliver full-year results on 6 May, and they’re not likely to be pretty. EPS is expected to drop by about a quarter, with a further fall on the cards for 2016 — and with dividend cover fixed at two times, that means we can expect a cut in the final cash handout too.

The problem is, I really don’t think the full woes facing Sainsbury have yet been fully accepted, and I get a horrible déjà vu feeling when I look back to Tesco a couple of years ago. In fact, Tesco’s year-end figures were worse than expected, with unexpected write-downs taking us by surprise, and I don’t think we’ve seen the last of the bad news.

Worse to come?

How does that affect Sainsbury? For one thing, we don’t have the same “new broom” keen to sweep away all the cobwebs and start afresh, so I’m not expecting any pre-emptive strikes targeted at giving shareholders a similar jolt. And at Q3 time, Sainsbury still seemed to be trying to make light of a bad situation.

Sainsbury’s has provided a great Christmas for our customers. Food price deflation and falling fuel prices have enabled our customers to treat themselves over the festive period“, said CEO Mike Coupe proudly. But hang on, surely that means that price deflation enabled shareholders to enjoy lower profits? It doesn’t sound so good like that, does it?

No, the full effect of competition from Lidl and Aldi has surely not been felt yet, and we have a long way to go before the price wars settle down and we can properly see the lie of the land. Sainsbury shares are down 16% over 12 months, to 272p, and I reckon they could go lower.

Steady growth

Meanwhile, over at BT Group (LSE: BT-A)(NYSE: BT.US), results due on 7 May should be a good bit cheerier. An upbeat third-quarter, together with the firm’s return to mobile with the takeover of EE, make the future look shiny — and the City is expected to see a solid 5% rise in earnings this year, followed by two more years of similar growth.

That might not be mega-growth territory, but it would drop the P/E own below 14 by 2017, with twice-covered dividend yields expected to rise to 3.5% over the same timescale.

High-speed broadband penetration had reached around three quarters of the UK by the end of December, and BT’s content delivery is offering some serious competition to the likes of Sky and Virgin. It’s all turning into solid cash flow too, with a rise of more than 60% at Q3 time.

Time to buy?

At 455p the shares are up 21% over 12 months, but there’s still a very strong Buy consensus amongst the tipsters — and I’m with them.

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