Robert Stephens, CFA, discusses the prospects for two FTSE 100 shares that have made gains in the current year.
Not all FTSE 100 stocks have fallen in price in 2020. Some shares, such as Kingfisher (LON:KGF) and AstraZeneca (LON:AZN), have become more popular among investors as a result of their recent financial performance and long-term growth prospects.
After their gains this year, do the two stocks offer good value for money and further capital growth potential? Or, have investors now factored in their long-term growth outlook and financial resilience to the current crisis?
AstraZeneca’s share price prospects
Like most companies, AstraZeneca’s financial performance has been disrupted by Covid-19. In spite of this, its third-quarter results were in line with expectations. Sales growth of 10% and a core EPS increase of 16% year-to-date is a rare performance in today’s economic environment. That’s probably a key reason for its 4% share price growth, and 20% outperformance of the FTSE 100, since the start of the year.
In my view, the stock has further growth potential. Its pipeline has shown an immense improvement over the past few years after being its Achilles heel for a sustained period of time. Highlights in the third quarter included further success in the oncology and diabetes segments. This could lead to further double-digit sales and EPS growth, as urbanisation in developed and developing markets across the world is likely to cause a rise in the prevalence of non-communicable diseases in future.
The AstraZeneca share price now has a forward P/E of 25. To some investors, that may make it prohibitively expensive. However, a lack of other options in the FTSE 100 and elsewhere that offer double-digit sales and EPS growth prospects alongside defensive credentials suggests that it may deliver further gains.
Kingfisher’s online growth opportunities
Kingfisher’s 25% share price surge in 2020 has taken many investors by surprise. Its status as an essential retailer has no doubt aided its cause, since it has experienced less disruption than other retailers. So, too, has a growing demand for DIY products and home offices that prompted a 17.6% rise in total sales in the firm’s third quarter.
In my opinion, Kingfisher is positioning itself for long-term growth. It has a solid omnichannel offering, with its stores and website working together to provide convenience and flexibility for consumers. It is also introducing greater autonomy for its country banners, which could mean they are able to respond to local changes in demand more quickly.
Changes to the company’s structure and operating processes have been long and arduous. There is still some way to go in improving its efficiency, but this could mean it has further to go in terms of growing margins. Its P/E of 10 does not seem to reflect its online market position, as well as likely changes in consumer spending patterns that may persist as a result of the pandemic. Its shares could make further gains after their FTSE 100 outperformance this year.