What do most people do at Christmas? Well, eat too much, drink too much and watchtoo much TV. That should be good news for these three companies. Will they join in the festive fun?
Diageo
Global spirits giant Diageo (LSE: DGE) will be raising a glass to Christmas after a mixed year. Mid-single digit growth is hardly spectacular, and a 2% decline in net organic US sales is disappointing. Festive favourites such as Smirnoff, Johnnie Walker and Gordons will figure highly on many shoppers panic buying What can I get them? shoppinglists.
Christmas comes but once a year and I dont see a particularly happy 2016for Diageo, especially if the emerging market slowdown worsens. With forecast revenues expected to dip slightly to 2.87bn, 2016 could be sticky. Earnings per share are forecast to rise just 1%. Yielding a stolid 2.9%, covered 1.6 times, the dividend is safer than most. Diageoshefty valuation of more than 21 times earnings could be taken asa sign of market confidence. If you are feeling bearish, Diageolooks more solid than many on the FTSE 100, but it hardly sizzles.
ITV
Half the nation will be glued to the last ever Downton Abbey on Christmas Day, while the other half maybe celebrating its demise. Whatever your view of the period costume smash, ITV (LSE: ITV) will definitely be sad to see it go.
But it wont be too worried, with the share priceup 28% this year and 300% over five years, and that isnt just down to the Downton effect. ITV has announced a string of profit upgrades, a novelty in this year of profit warnings and dividend cuts, and latest trading update for the nine months to 30 September showed total external revenues up an impressive 13% to 2 billion. ITV isnt just for Christmas, it is looking forward toanother year of strong double digit profit growth and an encouragingoutlook for 2016.
ITV has ambitions far beyondthe UKs shores as it looks to build a global content business: it is already the largest independent production house in the US. This should helpoffset the declining revenues fromterrestrial TV, and a strong balance sheet gives it deep pockets to invest further. This was a great buy for 2015, and should offer that rare thing a welcome repeat next year.
Tesco
Tesco (LSE: TSCO) needs a good Christmas more than anybody. Sadly, recent market share lossessuggests it remains a turkey waiting to be stuffed. Citi reckons it has the scope to be more competitive, to rebuild its profitability and to repair its balance sheet but its troubleswill be hard to reverse, especially now the early Dave Lewis effect has dissipated.
It is too early to judge the chief executivefairly, as he restructures the ailing supermarket giant, slashes costs and sells off subsidiary businesses. Trading at 17.8 times earnings it isnt even cheap, while the dividend is now negligible. Turning Tesco round wontbe easy, given already tight margins of 1%. Customers are a bit less grumpy than they were, perhaps they have revised their expectations downwards, but the glory days will never return, especially with Aldi and Lidl crashing the Christmas party.
A top stock tip isn’t just for Christmas but should deliver the goods all year round.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
