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Are today’s top turnaround buys G4S plc, Legal & General Group plc and TUI AG?

Shares in outsourcing giant G4S (LSE: GFS) rose last week after the group issued an upbeat trading statement. G4S, which employs 611,000 people in more than 100 countries, said that underlying sales rose by 4.5% during the first quarter.

The company’s share price has fallen by 35% over the last year, but a turnaround is under way. Chief executive Ashley Almanza is battling to clear the firm’s portfolio of 66 non-core businesses and a raft of lossmaking UK public sector contracts. Progress seems steady.

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The remaining challenge is for G4S to reduce its £1.8bn net debt to a more manageable level. A reduction is planned for the next 12-24 months, but we’ve yet to see how successful this will be.

If you can live with this risk, then the firm’s shares look quite attractive on 12 times forecast earnings, and with a prospective yield of 5%.

G4S may have a little further to fall, but I believe the shares could deliver decent gains over the next few years.

A 6% yield with long-term potential

Pensions and insurance firm Legal & General Group (LSE: LGEN) has fallen out of favour recently, dropping 20% since the start of the year. But the firm’s 2015 results were solid and I believe sentiment may be improving towards the stock.

Legal & General generated £1,256m of cash last year, 14% more than in 2014. Adjusted earnings were 11% higher, while the dividend rose by 19% to 13.4p per share. This progress is expected to continue in 2016, with an 11% rise in earnings per share pencilled-in for the full year.

Despite these solid results, the market has marked down the firm’s shares because of concerns about the group’s exposure to the corporate debt market. This decline means the stock now offers a chunky forecast yield of 6.6%.

At least one major investor, Neil Woodford, has used this weakness to add to his fund’s holdings in the company. I’ve recently added some shares to my own portfolio as I share Mr Woodford’s view that Legal & General’s cash generation and dividend growth will remain strong. In my view, the shares should be a profitable income buy.

Earnings could surprise the market

Travel firm TUI AG (LSE: TUI) surprised investors by announcing the sale of two subsidiary businesses in the last month. Last month’s €1.2bn sale of booking service Hotelbed was followed last week with the planned sale of TUI’s Specialist Group, a business that arranges sailing and outdoor holidays.

TUI says these disposals will help the firm to stabilise its debt levels and focus on its core growth activities. For investors, I think a more urgent concern is whether the collapse in holiday bookings for Turkey this summer will be offset by rising sales elsewhere. Turkey accounted for 14% of TUI’s summer sales last year.

Last week’s interim results were given a neutral reception despite a 2.7% rise in sales compared to the same period last year.

TUI currently trades on about 14 times 2016 forecast earnings with a forecast yield of 4.6%. This looks cheap to me, if the firm can deliver forecast earnings per share growth of more than 20% for the next two years. If earnings disappoint, the shares may fall further.

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

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