Is Burberry Group plc a top Footsie turnaround buy today?
Fashion house Burberry(LSE: BRBY) issued a trading update this morning and its shares are down 7.6% at 1,650p, as I'm writing. This is the second big one-day fall for the FTSE 100 firm in recent months, the shares having crashed 10% on 9 November from an all-time closing high of 1,985p the previous day.
The November drop came on the back of half-year results and a strategy update from new chief executive Marco Gobbetti. Mr Gobbetti, whose background is in high-end fashion (he was boss of French label Céline from 2008 to 2016), detailed a multi-year plan to reposition Burberry as a super-luxury brand.
Today's numbers for the three months to 31 December showed retail revenue falling 2% on a reported basis but increasing 1% at constant currency. The performance was not helped by a drop in the number of high-spending visitors to the UK. However, Mr Gobbetti said: "We are making good progress embedding our strategic vision into the organisation and remain on track to meet our full-year profit target."
Great long-term value?
Burberry's multi-year plan envisages "broadly stable" revenues and operating margins over the next two years, with cost-saving measures offsetting investment and "the rationalisation of non-luxury points of sale." Analysts see this translating into modest annual advances in earnings per share (EPS), increasing from fiscal 2021 in line with management's guidance of accelerating revenue growth and meaningful operating margin improvement.
Does Burberry offer good value for investors at the current share price? Shortly before the November price drop I rated the stock a 'sell', viewing the 12-month forward P/E of over 22 as simply too expensive. However, I suggested the shares "offer great long-term value when trading on a forward P/E in the teens." Today, the P/E stands at 20. As such, Burberry is not yet back into my 'buy' territory but is a stock I'll be keeping a close eye on.
Fellow FTSE 100 company Mediclinic International(LSE: MDC) has experienced a challenging couple of years and has seen its shares fall from a high of comfortably above 1,000p in summer 2016 to nearer 600p today. However, the private hospitals group, which operates in Southern Africa, Switzerland and the United Arab Emirates, is increasing revenues and has implemented cost-saving programmes and productivity initiatives.
Long-term demand for Mediclinic's services, underpinned by ageing populations and a growing disease burden, bodes well for continuing top-line growth, while the measures taken on costs and productivity are set to deliver a strongly rising bottom line. The 12-month forward P/E is 19 and this falls near to 17 in the subsequent period, with analysts forecasting annual double-digit EPS growth for the foreseeable future.
Mediclinic's P/E looks attractive to me in light of the outlook for earnings growth over the next few years and the structural story of rising long-term demand for the services the group offers. For these reasons, I rate the stock a 'buy'.
G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Burberry. 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.