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Retail hits top of earnings momentum rankings
In our latest screening of FTSE 350 stocks with the biggest one-month upgrades to earnings per share forecasts for this year and next year, the clear winners in terms of numbers are retailers.
Heading the field, somewhat surprisingly, is clothing and sportwear group Frasers (FRAS), best known for its pile-it-high-and-sell-it-cheap Sports Direct chain which accounts for more than 50% of sales.
The reason for our surprise is that Frasers specifically declined to give any financial guidance when it reported its full year figures in August. Yet analysts have lifted up their forecasts for this financial year and the next by an average of 30%.
The upgrades to footwear retailer JD Sports (JD.), homewares seller Dunelm (DNLM), department store owner Marks & Spencer (MKS) and DIY chain Kingfisher (KGF) make more sense to us, and paint a picture of a healthy outlook for consumption through the end of this year and into 2022.
For Dunelm, Frasers and Kingfisher, above-trend earnings for the last 12 month are seen ‘normalising’ at a lower level in the next financial year before picking up the year after. For JD and M&S, however, earnings are seen powering ahead from 2020-21 levels over the next two years.
The next best cluster of earnings per share upgrades are in housing-related stocks.
Residential landlord Grainger (GRI) has the biggest upgrade for this financial year at 9%, but up-market house builder Berkeley Group (BKG) has the best two-year average at 7% this year and next. Building materials firms CRH (CRH) and Grafton (GFTU) share an average growth rate of 4% to 5% for both years.
Among individual stocks, the biggest combined one-year and two-year earnings upgrades go to venture capital firm Draper Esprit (GROW), presumably due to the successful float of online car seller Cazoo which valued the business at $7 billion.
An honourable mention goes to equipment hire firm and FTSE 100 stalwart Ashtead (AHT) whose shares have also risen more than 70% this year after it raised its earnings guidance several times.
The biggest earnings downgrade is for Spire Healthcare (SPI) which experienced high levels of patient and consultant cancellations in July and August and warned the same could happen for the rest of the year.