Today I’ll be discussing the outlook for pharmaceutical giant Shire (LSE: SHP), cruise operator Carnival (LSE: CCL) and low-cost airline Ryanair (LSE: RYA). Would it be wise to invest in any of these shares today?
Merger madness
Earlier this month Dublin-based drugs group Shire confirmed that it still expected its merger with US firm Baxalta to go ahead, despite the proposed deal between Pfizer and Allergan being shelved due to new US tax rules.
The $32bn merger between Shire and Chicago-based Baxalta was originally announced in January and is expected to be completed by the middle of this year. The proposed $160bn deal between Pfizer and Allergan fell foul of new tax rules in the US that stop companies from adopting a foreign address for tax reasons through acquisitions. But Shire doesn’t see this as a problem.
The company is expected to continue its strong performance this year with market consensus predicting 12% earnings growth, followed by an even better 14% next year. This would give the shares a price-to-earnings ratio of 14.5, falling to 12.7 for 2017. The shares have gained 16% in the last month and I would wait for the next dip before buying to get a move favourable price.
Cruising along nicely
Cruise operator Carnival updated the market with a strong set of quarterly results recently, reporting a huge rise in net income to $142m compared to $49m in the same period last year, on higher revenues of $3.65bn. Management raised the quarterly dividend by 17% to 35¢ as a result of the strong performance and optimistic outlook for 2016.
The next couple of years are expected to produce strong growth, with analysts talking about a 24% rise in earnings this year, followed by a further 19% rise in 2017. At current levels this would leave Carnival trading on earnings multiples of 16 and 13 times forecast earnings for this year and next.
The share look slightly undervalued to me, but I don’t see enough upside to warrant a buy recommendation.
High-flyer
Budget airline Ryanair has announced a range of new initiatives to improve its customer experience as part of its Always Getting Better programme. Improvements being rolled out this year should include lower fares as a result of lower fuel costs, as well as slimline seats, more legroom and LED lighting. There will also be a ‘rate my flight‘ function on the airline’s mobile app, allowing customers to rate their flight and crew in real-time.
The shares reached all-time highs of €15.34 at the start of the year, but have since fallen back to current levels of around €13. So is this a buying opportunity? Well, the City expects earnings growth of 49% for the financial year just ended on 31 March, with further improvements of 20% and 17% this year and next.
On that basis the shares are trading on 13.5 times forecast earnings for fiscal 2016, falling to 11.3 and 9.6 for 2017 and 2018, respectively. Investors seeking growth at a reasonable price should reach into the luggage compartment and grab their wallets as this is an excellent buying opportunity.