Today Im considering the bounceback potential of three battered FTSE 100 (INDEXFTSE: UKX) giants.
Out of gas
Centricas (LSE: CNA) struggle again the steady rise of small, independent suppliers has been well documented. The energy giants British Gas customer base eroded by a further 1.5% during January-March, and this trend is likely to continue as its promotion-led rivals become bolder and more numerous.
Some would point to a recovering oil price as a reason to be cheerful, however, with Brent recently reclaiming the psychologically-crucial $50-per-barrel marker. But with global supply still edging higher, and insipid demand failing to take the heat out of bloated inventories, I dont expect Centricas upstream divisions to drag the firm out of the mire any time soon.
The City expects Centrica to endure a third successive earnings dropin 2016, a 13% dip currently being forecast. And I believe further woes can be expected beyond this year.
Leave it on the shelf
Like Centrica, a steady erosion in its traditional customer base has kept grocery giant Morrisons (LSE: MRW) well on the back foot.
Greater selection in the grocery market has seen shoppers ditch the Bradford chain like nobodys business. German chains Aldi and Lidl have proved unassailable in the fight to attract price-conscious customers, while more upmarket rivals like Sainsburyshave taken steps to improve product quality to further batter Morrisons.
And the entry of Amazon into the grocery space adds yet another curveball for Britains traditional outlets to negotiate.
The industrys major players continue to fret over the fragmentation of the supermarket space, with Sainsburys chief executive Mike Coupe advising last week that market conditions remain challenging. He addedthat pressures on pricing mean the market will remain competitive for the foreseeable future.
Against this backcloth, I wouldnt stake the house on Morrisons meeting current forecasts of a 31% earnings bounce in the current fiscal period.
Hitting turbulence
While its also battling challenging trading conditions, I believe Rolls-Royce (LSE: RR) has a brighter long-term outlook than thebig-cap peers Ive described above.
Chief executive Warren East recently commented that despite steady market conditions for most of our businesses, 2016 continues to be a challenging year overall.
Aftermarket revenues at Rolls Royces Civil Aerospace unit are flailing as airlines dump their older planes in favour of newer, more fuel-efficient jets. And the engineers focus on the wide-body plane market also means its losing out on rising demand for narrow-body craft.
On top of this, itsmarine division is also toiling against a backcloth of weak oil prices.
Still, I believe there are reasons to be optimistic over Rolls-Royces future. The companys expertise across multiple markets continues to power the order book, which rose 4% in 2015 to end the year at 76.4bn. And I expect this to keep rising as the long-term outlook for commercial aeroplane demand remains strong.
But with an anticipated 59% earnings drop in 2016 producing a P/E rating of 24.4 times, many investors may consider Rolls-Royce too expensive given the hard work it faces to reduce costs and boost near-term revenues.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Amazon.com. The Motley Fool UK has recommended Centrica. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
