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1 FTSE 100 growth star that’s trading far too cheaply

Britons’ love of a cheap hotel bed and a hot cup of joe has made Whitbread (LSE: WTB) a brilliant earnings generator for some years now.

And with the FTSE 100 company keeping the foot down on its foreign expansion drive, profits are predicted to keep on stomping higher. Bottom-line rises of 4% and 8% are anticipated for the years to February 2018 and 2019.

Despite this perky earnings picture however, the Costa Coffee and Premier Inn owner appears to be undervalued by the market. A forward P/E ratio of 14.3 times is below the widely-considered value watermark of 15 times and, in my opinion, fails to fairly reflect the long-term opportunities of its ambitious expansion strategy.

Just last month Whitbread said that “growing in our core UK markets” as well as “focusing on structural growth opportunities for Premier Inn in Germany [and] Costa in China and Costa Express” are key to its growth plan.

A dividend dynamo

I reckon the Foostie star’s progressive dividend policy also makes it worthy of serious attention now.

The company’s strong profits record and exceptional cash generation helped it lift the full-year payout 6% in fiscal 2017, to 95.8p, and further healthy rises — to 99.9p this year and to 106.9p next year — are anticipated by the number crunchers.

These projections yield a punchy 2.7% and 2.9% respectively, and investors can put the house on these forecasts hitting the target too with dividend coverage running at 2.6 times through to the close of next year, soaring above the well-known security yardstick of 2 times and above.

A slow burner

I believe those seeking solid earnings and dividend growth in the years ahead should also take a look at IWG (LSE: IWG)

IWG, which provides flexible workplace solutions, saw its share price plummet in late October after it warned: “The previously anticipated sales improvement in the third quarter… was weaker than expected and this has resulted in a pause in the recovery of the Mature business.” And it slashed its full-year operating profit forecasts as a consequence, to between £160m and £170m.

However, IWG on Thursday affirmed that it has witnessed “[a] very strong uplift in sales activity for October,” and suggested that the previously-disappointing revenues performance here could be “in part potentially a timing issue.” Indeed, glass-half-full investors could point to its global expansion scheme (it added 47 new locations worldwide in the third quarter alone) as reason to expect sales to march higher following a turbulent 2017.

The City certainly subscribes to this point of view, and current estimates predict that IWG will snap from a 9% earnings decline this year to record a 22% bottom-line rise in 2018. And the FTSE 250 firm’s solid earnings outlook is expected to keep sending dividends northwards too, last year’s reward of 5.1p per share predicted to bounce to 5.4p and 6.1p this year and next. These projections yield 2.5% and 2.8% respectively.

A forward P/E ratio of 16.1 times may look unappealing on paper, but given IWG’s improving sales momentum, now could prove a sage time to pile in.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.