W M Morrison (first-half earnings 13 September)
Morrisons is expected to report a 0.6% rise in earnings for the first half (H1), to 13.1p per share, while revenue rises 2.6% to £17.7 billion. The firm has beaten estimate in five out of the last eight reports for both of these figures. The average move on results day is 4.17%, with current options pricing suggesting a 3.37% move.
The firm continues to play catch-up in the online and convenience areas, but crucially performance in its weaker South-East area should be improved now that the Ocado Erith warehouse is making a contribution. The newly re-established Safeway brand continues to make progress towards the £1 billion near-term goal, providing another positive catalyst for the shares. Having posted ten consecutive quarters of like-for-like sales growth Morrisons has done well, but now it requires a real push into wholesaling to help counter Tesco and its Booker acquisition.
The shares currently trade at 19.1 times forward earnings, noticeably higher than the five-year average of 16, although not excessively so. Its dividend of 2.3% is lower than the comparable average of 4.7%, and for now the shares trade at a 35% premium to peers, compared to a two-year average of 20%.
The shares have pushed steadily higher since March, and may well be about to post a new higher low. A rebound will target the 270p area, while it will need a move below 250p to suggest sustained bearishness is at hand.
JD Wetherspoon (full-year earnings 14 September)
JD Wetherspoon is forecast to see 8.3% growth in earnings for the year, to 74.9p per share, while revenue is expected to be up 2.5% at £1.7 billion. The firm has beat earnings in each of its last seven updates, but missed on revenue in four of the last seven. The average one-day move on results day is 4.1%.
Wetherspoon said that the second half had started well when it reported first-half earnings, with solid like-for-like sales in the six weeks to 11 March. However, costs are expected to rise and sales are forecast to slow, so we could see a diminution in performance for the second six months of the year. Net debt may also pick up in H2, pushed along by increased capital expenditure, but solid margins should help cushion the impact to a degree.
The firm currently trades at 15.7 times forward earnings, versus a five-year average of 17.1, and it does face weaker sales growth over the next three years, at 3% versus a four-year average of 6.7%.
The shares are back above their post-Brexit vote trendline, posting a higher low and now target the £12.50 and £13.35 areas respectively. Below £11.70, the £11.00 lows from March come into view.