Today I’m looking at two stocks making the news on Christmas Eve.
Oil play blasts higher
Shares in oil explorer Enquest (LSE: ENQ) have enjoyed a spectacular surge in the run-up to Christmas, the business last dealing 10.4% higher from Wednesday’s closing price.
Market appetite has been boosted by a slight recovery in the crude price in recent days. Although still subdued, the Brent benchmark has edged off the 11-year troughs of $36.04 per barrel struck at the start of the week and was last at $37.50.
On top of this, Enquest has been buoyed by comments from industry cartel OPEC that prices should return to $70 per barrel by the close of the decade due to the impact of escalating production costs.
But with diving oil prices continuing to confound claims that a price recovery is just around the corner, I believe that such projections should be viewed cautiously. Production from OPEC, the US and Russia looks set to keep surging, while Chinese economic deceleration continues to surprise to the downside.
Enquest saw revenues slip almost 12% between January and June, to $444m, thanks to the steady erosion in oil prices. So it comes as little surprise that the City expects earnings at Enquest to slip 61% for 2015, to 7 US cents per share. And the firm is expected to dip into the red in 2016 with losses of 3.6 cents per share.
Given Enquest’s wafer-thin balance sheet (net debt ballooned by more than a third year-on-year as of June, to $1.28bn) and with crude prices still rattling lower, I believe the firm remains a risk too far, even on a P/E rating of 4.2 times.
Retailer takes a hit
I’m far more optimistic concerning the growth outlook over at fashion brand Ted Baker (LSE: TED), despite the release of a pessimistic broker note from Jefferies.
Shares in the retailer slipped 1.6% on Christmas Eve after analysts advised late on Wednesday that the impact of mild weather, massive discounting in the US and economic cooling in Asia could hamper festive trading. Jeffries also cut its rating on Ted Baker to “hold” from “buy.”
Ted Baker has been one of the big retail winners in 2015, its stock price ascending 38% since the turn of January. And while Jefferies’ concerns may be well founded, I believe the retailer’s rampant global expansion drive should continue sending stock prices higher in 2016 and beyond.
Ted Baker’s splendid brand power has propelled earnings at double-digit percentages for many years now, and the City does not expect this trend to cease any time soon. Indeed, rises of 20% and 16% are chalked in for the years ending January 2016 and 2017 respectively.
A P/E rating of 30 times for next year may appear expensive from a conventional standpoint, but I fully expect this multiple to keep on toppling as profits head through the roof.
