Today I am looking at the investment case for a clutch of Tuesday’s biggest movers.
Cairn Energy
Fossil fuel play Cairn Energy (LSE: CNE) was recently at the head of the leaderboards in Tuesday business and was dealing 5.4% higher on the day. However, I believe that — like the rest of the oil sector’s operators, both big and small — that the spectre of worsening oversupply could send share prices shuttling lower again in line with earnings.
Indeed, Cairn Energy is expected to record a third successive annual loss in 2015, and an 18.2-US-cent-per-share loss is currently pencilled in by the City. And losses of 15.9 cents are anticipated for the following year amidst enduring market difficulties. Although the firm has recently submitted plans to start drilling off the coast of Senegal, and first oil at the Kraken and Catcher fields in the North Sea are anticipated for 2017, a backdrop of prolonged pressure on the crude price could put paid to the long-term earnings potential of these assets.
Wolseley
Like Cairn Energy, plumbing giant Wolseley (LSE: WOS) has also been making waves since Monday’s close and was last changing hands 1.7% higher. The Swiss-headquartered firm cheered the market with news that like-for-like revenues chugged 7.5% higher during January-March, a result that drove trading profit a terrific 29.1% higher to £195m.
Wolseley announced that it had “outperformed the market in all key regions,” and I expect the pipe specialist to continue pumping higher as conditions in its key US and UK markets keep on improving. Accordingly the business is expected to enjoy 15% earnings upticks for the years ending June 2015 and 2016, resulting in earnings multiples of 17.8 times and 15.5 times — a reading around 15 times is broadly considered excellent value.
Amec Foster Wheeler
Although the effects of a battered oil sector are likely to dent revenues at Amec Foster Wheeler (LSE: AMFW), I do not believe that the effect of reduced capex spend will prove terminal for the firm’s long-term growth outlook. Indeed, the company’s operations span a range of engineering sectors and the order book continues to tick resolutely higher — the business announced today that its book swelled to £6.7bn as of the end of April, up from £6.3bn at the close of 2014.
Pressures across the oil industry are expected to push earnings 2% lower in 2015, following on from last year’s 8% decline. But the bottom line is expected to flip 8% higher in 2016 as its expertise in other sectors pays off. Consequently a terrific earnings multiple of 11.7 times for this year drops to just 11.3 times for the following period.
Foxtons Group
Estate agents Foxtons (LSE: FOXT) have been handed the wooden spoon in Tuesday’s session and the company was recently dealing 5.9% lower. Today’s loss has been prompted by broker Peel Hunt placing a sell on the business as the impact of cheaper rivals attracts the steady stream of homebuyers and tenants from its doors.
Despite these woes, the City expects Foxtons to punch earnings growth of 6% and 8% in 2015 and 2016 respectively. However, these readings leave the business dealing on elevated earnings ratios of 22.8 times and 20.7 times following the firm’s stratospheric share price rise. And with the agency market becoming ever-more competitive, I believe these high readings leave Foxtons susceptible to further share price slips. Indeed, Foxtons may be forced to slash the high commissions it currently charges to head off the competition, taking a swipe out of current revenues projections.