Stock of the day 20/05/2015 – Royal Mail PLC/Gap Inc

A postman and a clothes seller walk into a bar and announce their earnings releases, as Royal Mail and Gap reveal their latest results on Thursday.

A disastrous 2014 saw Royal Mail PLC fall from £5.65 at the start of the year to £4.30 by its close; not exactly a stellar first full year of trading, and one that will have ramifications for its full year 2014 earnings release on Thursday. 2015 has been slightly better; after hitting a low of £4.02 at the very start of January, February to April brought little change for the postal company. However, good news at the end of April sent the stock soaring, from £4.43 to £5.04 last week, Royal Mail’s highest price since June last year. The company is now trading just below this level at $5.00.


(Source: IT-Finance.com 20/05/2015)

Most, or arguably all, of Royal Mail’s market success over the month of May has been to do with the fortunes of its rival postal service Whistl. The news at the end of April that the owner of Whistl, Dutch company PostNL, had ended its British expansion talks with private equity firm LDC about started Royal Mail’s rally. The British institution was pushed even higher 11 days later when Whistl announced it was taking more drastic measures, suspending its door-to-door delivery service in the UK due to the unsustainability of its non-fully rolled out operation.

Without backing from LDC for a full-rollout Whistl’s entire presence in the UK has been put in jeopardy, something that was catnip for Royal Mail investors. In fact, Whistl has accused Royal Mail of ‘predatory pricing’, something that helped push the Dutch company out of the market and contributed to its inability to secure funding for its intended expansion. Yet whilst investors may not care about the methods in which Whistl’s business slowly failed, another company’s misfortune can only take you so far, something Royal Mail may find out when it releases its full year results. Whilst the company is forecast to show flat-to-falling revenue of £9.4 billion, it is expected to post (pardon the pun) an operating profits decline of 16% to £562 million. Analysts have given Royal Mail a consensus rating of ‘hold’ with a target price of £4.52.

Come Thursday Gap Inc will be hoping to close the well, gap, between it and its rivals when it announces its Q1 2015 earnings release. An erratic 2014, a year that saw highs of $46.85 and lows of $35.54 within a month of each other, has given way to a slightly more understated 2015. After starting the year at $42.42, Gap quickly hit a high of $43.87 in the first week of January; since then there has been little excitement surrounding the clothing company as it spent the first few months of the year trading between $40 and $43 per share. A return to the high of $43.89 at the end of March was to be a turning point for Gap, and since then the stock has been on the slide, hitting a low of $38.10 last Thursday before bouncing back slightly to a current trading price of $38.62.


(Source: IT-Finance.com 20/05/2015)

The company has seen continued sales struggles for premium brands like Gap and Banana Republic, with Easter failing to provide its usual boost as Gap gets left behind in the wake of cooler, younger stores like H&M and Zara. However, some of these issues are being offset by the growth of Old Navy, a brand that made up 40% of the company’s global revenue last year. Importantly, this brand is cheaper, closer to the prices seen in its key rival stores; its cheapness is helping to overcome Gap Inc’s declining cultural clout. Yet despite the relative strength of Old Navy, Gap Inc posted a 4% like-for-like fall in sales for the first quarter, something that contributed to its stock slip in the last week.

In terms of its overall first quarter results, Gap Inc is expected to have been hurt by the strength of the dollar, leading analysts to forecast earnings per share of $0.39 with sales of $3.857 billion. What could help Gap is tomorrow is the knowledge of its weak first quarter sales; investors likely won’t have their hopes up, so the mildest of surprises could have a big impact on the market performance. Analysts have given the company a consensus rating of ‘hold’ with a target price of $38.20.