I've been rather bearish on G4S(LSE: GFS) for some time, not that impressed by its dividend yields of only around 3%, even though Neil Woodford spotted it as a turnaround prospect some time ago and currently has it in his Equity Income Fund.
After pondering further, I've changed my mind and I think Mr Woodford is right after all -- though that won't be much of a surprise given his track record of success. In fact, after a number of years of declining profits, I can see G4S heading into a new period of earnings growth.
A 6.3% revenue growth from continuing businesses in 2016 translated into a 16.6% earnings rise. Things look to be improving globally, with developed and emerging markets revenues rising, and revenues are up nicely across the company's divisions.
Speaking of "stronger foundations, growing competitive capabilities and an attractive array of market opportunities," chief executive Ashley Almanza added: "Our transformation strategy is expected to produce further performance improvements and underpins our aim of delivering sustainable, profitable growth."
The firm's 2013 turnaround plan does seem to be bearing fruit, and the City's analysts are on board with it. Forecasts for the current year suggest a 44% rise in EPS, and give us an attractive PEG ratio of 0.4. That would put the P/E at 16.5, but a further 10% EPS rise penciled in for 2018 would drop that to around 15.
If you'd been smart and bought in at the dip in July last year, you'd now be sitting on a 78% gain after the shares have rebounded to 307p. Is there further growth to come and are the shares still attractively priced? I think so.
Mr Woodford also likes the health and medical sectors, with AstraZeneca and GlaxoSmithKline his top two holdings. And he's keen on smaller firms in the business too. I'm drawn to Spire Healthcare(LSE: SPI).
Spire, which bills itself as "one of the UK's leading independent hospital groups," only floated on the stock exchange in July 2014, and it has the makings of a good long-term growth story. Increasing pressure on the NHS, moves towards outsourcing, and the growth in private healthcare all suggest to me that Spire has an attractive market to target.
In its 2016 results, executive chairman Garry Watts said: "We remain well placed to benefit from opportunities arising from the demographics of UK healthcare and constrained NHS capacity. We expect the group to return to mid-to-high single-digit EBITDA growth from Financial Year 2018 onwards."
Losses at St Anthony's Hospital should hold back earnings this year, with the City forecasting a 10% fall. But there's a 12% rebound pencilled-in for 2018 and that "mid-to-high single-digit EBITDA growth" wouldn't take long to get earnings growth well under way. Just 7% growth per year from 2018 onwards would see earnings per share doubling in 10 years to around 38p, and would halve the P/E ratio to just 8.5.
We should also see dividends progressing in the coming years. The 3.8p announced for 2018 represented a yield of less than 1.2% on today's share price of 325p, but that was covered five-fold by earnings, and in these early growth years I'd expect most of the company's earnings to be ploughed back into expansion.
But that should set it up to become a tidy little income stock in the future too.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.