I have recently been evaluating the investment cases for a multitude of FTSE 100 (FTSE: ^FTSE - news) companies.
Although Britain's foremost share index has risen 6.1% so far in 2013, I believe many London-listed stocks still have much further to run, while conversely others are overdue for a correction. So how do the following five stocks weigh up?
In my opinion, cruise holiday specialists Carnival is set to overcome its current troubles associated with technical problems in its fleet and post healthy growth in the long-term. In particular, the firm is making progress in key emerging markets, particularly those of South-East Asia, which should underpin revenue growth moving forwards.
Indeed, broker Investec (LSE: INVP.L - news) has predicted a compound annual capacity growth rate of 3.7% through to end-2016. City analysts expect earnings per share to rise 14% in the year ending November (Xetra: A0Z24E - news) 2013, to 134p, before picking up speed and rising 22% in 2014 to 164p.
The company currently changes hands on a price-to-earnings (P/E) ratio of 16.6 and 13.6 for 2013 and 2014 correspondingly, signalling a discount to a forward earnings multiple of 17.1 for the entire travel and leisure sector.
Carnival is liked by investors seeking exciting dividend prospects, helped after the firm hiked its full-year payout 21% in 2012 to 63.5p. And brokers expect the dividend to rise to 73.3p this year and 82.8p next year, providing yields of 3.3% and 3.7% for these years, moving above the current 3.3% FTSE 100 average.
Reckitt Benckiser (Xetra: A0M1W6 - news)
I believe that Reckitt Benckiser -- whose stable of household goods and over-the-counter drugs brands include Dettol, Clearasil, Nurofen and Durex -- is in danger of experiencing a heavy share price correction in the near future, as patent expiration on one of its key products casts a pall over revenue estimates from next year onwards.
The company is expected to face galloping competition for its Suboxone anti-narcotics addiction product due to a loss of exclusivity in the US. Indeed, BioDelivery Sciences International (NasdaqCM: BDSI - news) is aiming to launch its cheaper, generic rival product next year. Suboxone tablet sales in the US represented 5% of group revenues in 2012, while film made up around 10% of total turnover.
Earnings per share are expected fall 1% to 262p this year, according to Liberum Capital, before slumping 4% in the following 12-month period to 252p. Reckitt Benckiser was recently dealing on a P/E rating of 17.7 and 18.5 for 2013 and 2014 correspondingly, underlining the firm's heady rating when compared with an average prospective earnings multiple of 15.4 for the household goods and home construction sector.
The company offers juicy dividend yields around the FTSE 100 average, with readouts of 3.1% and 3.3% pencilled in for this year and next. But I reckon that investors should seek dividend returns elsewhere given the muddy revenues outlook for Reckitt Bensicker.
International Consolidated Airlines Group
I reckon that International Consolidated Airlines Group's aggressive transformation plan of beleaguered carrier Iberia should help it to bounce back convincingly in coming years and post excellent earnings growth.
The company recorded an operating loss of €23 million last year before Iberia's restructuring, and €68 million post-restructuring. This compares with an operating profit of €485 million in 2011.
However, I believe that IAG is starting to turn the corner, having agreed a deal with Spanish unions recently which will result in 3,100 job cuts. It is also active on the M&A front to supplement organic growth and is set to conclude the takeover of Spanish budget airline Vueling shortly.
Broker Investec expects earnings per share to register at 12.2p in 2013, a vast improvement from losses per share of 13.1p in the previous 12 months, and which is expected to rocket 124% higher to 27.3p in 2014.
The airline giant currently trades on a P/E rating of 20.1 for this year, but this is expected to drop heavily to 9 in 2014. These figures underline the exceptional earnings potential of the company, particularly compared with a forward earnings multiple of 17.1 for the wider travel and leisure sector.
Admiral Group (LSE: ADM.L - news)
I believe that Admiral Group faces heavy earnings pressure moving forwards. The majority of the insurer's earnings emanate from non-core operations, and with turnover from these areas expected to dip -- allied with increased competition in the key motor insurance space -- I expect the share price to come under the cosh.
City analysts expect earnings per share to fall 2% to 93.4p this year, and which is forecast to dive 13% the following year to 80.9p.
The company boosted the full-year dividend 20% in 2012, to 90.6p, and followed a chunky 11% rise the previous year. But analysts believe that falling earnings are likely to put paid to the firm's über-progressive dividend policy moving forwards -- brokers have earmarked an 87.7p dividend for 2013, which they expect to fall to 73.9p in 2014. And meagre coverage of just 1.1 times earnings for these years exacerbates the likelihood of a dividend cut.
Admiral currently changes hands on a P/E rating of 14.4 and 16.6 for 2013 and 2014 respectively, signalling a meaty premium to a readout of 10.2 for the entire non-life insurance sector. In my opinion the combination of a worsening earnings outlook and likelihood of dividend cuts makes the company an unappetising pick at present.
Smith & Nephew (LSE: SN.L - news)
I believe that Smith & Nephew's drive towards emerging markets and higher-growth product areas provides the company with an exciting platform upon which to build future earnings.
The healthcare play is latching onto more lucrative markets, exemplified by its takeover of wound management specialists Healthpoint Therapeutics in late 2012. The firm is also ramping up M&A activity in red-hot developing regions to reap the rewards of high growth rates there, facilitated by a robust balance sheet. Its Emerging and International Markets division grew 14% in quarter four versus a 1% rise and 2% increase in its Other Established Markets.
City analysts expect earnings per share to rise 3% in 2013 to 51p, before growth accelerates 9% the following year to 55p. Smith and Nephew can be snapped up on a P/E ratio of 14.9 and 13.7 for this year and next, representing increasingly-decent value compared with a forward earnings multiple of 15 for the whole health care equipment and services sector.
The firm is also ratcheting up its dividends, and increased its final dividend 50% to 16.2 cents (10.5p) per share last year, resulting in a 26.1 cent full-year payout. Analysts expect last year's final dividend to rise to 17.6p and 19.3p in 2013 and 2014 respectively, and although yields of 2.3% and 2.6% for these years are below the FTSE 100 average, I expect these to keep rolling higher as earnings increase.
Further company comment can be found at www.fool.co.uk
> Royston does not own shares in any of the companies mentioned in this article. The Motley Fool owns shares in Smith & Nephew.
