JSG declared that it “has continued to trade very well in the first half with the results for the full financial year now expected to be slightly ahead of management expectations.”

The textile rental provider added that it “is very well placed for the seasonally busy summer months following the successful completion of two major investment programmes at the Southall and Chester factories.”

Textiles titan

JSG has long proven to be a reliable earnings generator, and City brokers expect this trend to continue, albeit at a slower pace. Expansion of 3% is pencilled-in for 2017, and an extra 4% rise is anticipated for next year.

Current projections create a forward P.E ratio of 16.7 times, peeking outside the widely-regarded value yardstick of 15 times or below. But I believe this still provides an attractive entry point given the strong possibility that JSG’s profits forecasts will be upgraded in the weeks and months ahead.

A combination of strong organic growth and shrewd M&A activity has helped propel JSG’s bottom line in recent times, and revenues grew an eye-popping 36% last year to £256.7m.

Indeed, the acquisition of Zip Textiles, Afonwen and Chester Textiles last year has further enhanced the company’s position in high-growth, high-margin areas like the hotel linen rental segment, not to mention bolstering JSG’s production capacity and geographic footprint.

And with the firm continuing to invest huge sums across the business, I reckon JSG should remain a go-to growth generator for some time yet.

Brand behemoth

Household goods colossus Reckitt Benckiser (LSE: RB) is another proven growth winner that should keep on pleasing investors in the years ahead.

The London manufacturer is expected to keep earnings expanding by double-digit percentages with advances of 11% in both 2017 and 2018. And in my opinion a prospective P/E ratio of 22.7 times is a bargain given the brilliant pricing power of labels like Nurofen, Strepsils and Durex. These are high-margin products that can be sure to keep group earnings marching higher even if broader economic turbulence dents consumer appetite.

On top of this, of course, it can look to its sprawling presence in developing regions to deliver stellar long-term returns. The company saw like-for-like sales in these territories rise 4% during January-March, to £869m, and I expect turnover to keep striding higher as personal wealth levels in these regions steadily improves.

Reckitt Benckiser is also engaged in massive restructuring to hive off its underperforming food business, and bolstering its position in the fast-growing consumer health segments through new product launches and acquisitions like that of US-giant Mead Johnson. I reckon the firm is in great shape to keep delivering brilliant earnings expansion.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser. 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.

The stock was already on the defensive following June’s referendum, but last month’s trading statement really put the boot into Dunelm’s share price. The retailer is now dealing at five-year lows, and I reckon another murky release — half-year numbers are slated for Wednesday, February 8 — could prompt a fresh move lower.

The Dunelm Mill owner announced in January that like-for-like sales had slumped 1.6% during the 26 weeks to December 31, to £431m, with revenues at its stores sinking 3% from the corresponding 2015 period.

And the business has struck a cautious tone looking ahead. Dunelm advised that “the homewares market has continued to decline” and that the retail environment remains “challenging and volatile.”

A backdrop of rising inflation is likely to keep demand for discretionary items like furniture on the defensive in 2017 and possibly beyond. And while Dunelm has outperformed the market in recent times, an intensely-competitive marketplace could see the business having to reduce costs to stop sales diving.

City brokers currently suggest that a 7% earnings decline is on the cards for the period to June 2017. A subsequent P/E ratio of 14.3 times is hardly hair-raising, but in my opinion remains far too dear given the threat of prolonged sales weakness.

Manufacturing marvel

While I retain a bullish long-term opinion of Reckitt Benckiser Group (LSE: RB), I reckon signs of further sales stress at this month’s full-year update (currently scheduled for Monday, February 13) could see the firm’s stock value sink again.

A worrisome third-quarter statement in October forced investors to steadily march for the door, the stock hitting nine-month lows in December as a result. And while Reckitt Benckiser’s share value has tipped higher since then — helped in no small part by the proposed takeover of baby formula manufacturer Mead Johnson this week — I reckon this fresh strength makes a retracement even more likely.

This is particularly so as, despite City forecasts of a 14% earnings rise in 2017, this still leaves Reckitt dealing on a P/E ratio of 21.2 times, soaring above the FTSE 100 average of 15 times.

The Nurofen and Durex maker advised in October that like-for-like sales rose just 2% during July-September, slowing from the 4% advance enjoyed in the prior quarter and a 5% rise in the first three months of 2016. Reckitt Benckiser cited macroeconomic and operational troubles in key markets in Brazil, Russia and Korea in hampering recent top line performance.

Despite these problems however, and the possibility of fresh share price weakness in the weeks ahead, I believe the strength of its brands — and the huge investment being ploughed into developing these ranges — makee the business a great buy for patient investors.

And I expect the firm’s huge exposure to developing economies to generate fantastic earnings growth as the financial firepower of consumers in these destinations steadily grows.

The post These 2 stocks could be about to crash appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Is Mead Johnson a good buy for Reckitt? Will the deal happen? And should you snap up shares of the FTSE 100 consumer goods powerhouse?

A good buy?

Reckitt is looking to buy Mead Johnson for $90 a share in cash, valuing the US firm at $16.7bn. This is affordable for Reckitt, whose market cap is £50bn at a current share price of 7,100p (up 4% on the day). It expects to finance the deal with a combination of cash and debt “whilst retaining a strong investment grade credit rating”.

As well as being affordable, the valuation looks attractive. The proposed $90 a share represents 17 times Mead Johnson’s forecast 2017 earnings before interest, tax, depreciation and amortisation (EBITDA), which compares favourably with the 20 times forecast EBITDA Danone is paying for WhiteWave Foods.

Mead Johnson could also be a good buy for Reckitt because it further diversifies its range of consumer categories, which are currently best represented by Lysol cleaning, Durex condoms, Nurofen painkillers and Scholl footcare. Mead Johnson’s strength in Asia, particularly China, would also usefully increase Reckitt’s exposure to higher-growth emerging markets.

Will the deal happen?

Reckitt’s announcement contained the usual disclaimer that there’s “no certainty that any transaction will ultimately be agreed, nor as to the terms on which any transaction might occur”. However, there looks to be a good chance of it going ahead for a number of reasons.

Reckitt said today that it’s in “advanced negotiations” and at the stage of “due diligence and contract discussion”. Another positive for a go-ahead is that the acquisition would present no antitrust obstacles to Reckitt, something that can’t be said of Nestlé, which has been seen as a potential bidder for Mead Johnson. Meanwhile Danone, another touted bidder, is busy completing its WhiteWave Foods deal.

Should you snap up the shares?

After the rise in its shares today, Reckitt is trading on 21 times forecast 2017 earnings. That may look a bit pricey but there are a number of reasons why I believe the stock is still worth buying.

• I reckon there’s a good chance the deal will go ahead and if so, it will be earnings-enhancing.

• While this would be Reckitt’s biggest deal to date, it’s previously done a fine job of integrating some other pretty sizeable companies.

• There are always analysts who question the advisability of an acquisition but the market’s initial reaction to the news — favourable in Reckitt’s case — is often a better guide to the longer-term direction the shares will take if the deal does complete.

• If the deal were to collapse and the share price fall back, I don’t think it would be too long before Reckitt sought out another prize asset for an earnings-enhancing acquisition. Pfizer‘s consumer-health unit, for example.

For these four reasons, I wouldn’t be put off buying Reckitt’s shares today.

The post After $16.7bn Mead Johnson bid, is Reckitt Benckiser Group plc a buy? appeared first on The Twelfth Magpie.

More reading

• Start buying shares with just £20 a week? Here’s how even that could help someone build wealth
• Here’s how putting £800 a month into a Stocks and Shares ISA from age 27 could fund a £2m retirement!
• Relying on the State Pension for retirement? Here’s why it might not be enough
• 3 beaten-down FTSE 100 shares to consider buying and holding for a decade
• How much would you need in a SIPP to replace a £3,000 monthly salary?

G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Reckitt Benckiser. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.