Compass Stock Price Sinks 20% On Profit Warnings

Compass Stock Price Sinks 20% On Profit Warnings

  • Compass expects first-half profits to be £125 million to £225 million below expectations
  • 2020 projected growth slashed from 5% to 1%
  • JP Morgan expects full year operating profit to drop by 12%

Shares of Compass Group (LON:CPG) fell around 20% this morning in London after the catering giant issued a profit warning. As a result, the price action now trades at a 6-year low below the £9 handle.

Fundamental analysis: Profit lower, jobs in jeopardy

Compass Group announced it expects first-half profits to be £125 million to £225 million below expectations. The company earned £951 million pounds in the same period a year ago.

“We are working to protect our cash flow and are proactively managing our capital expenditure and working capital,” Compass said in a press release.

Last month, Compass said it expects to grow between 4% and 6% in 2020, a forecast which has now been slashed to anywhere from 0% to 2%.

“We are implementing significant mitigation plans to manage our costs, and at this stage expect the drop-through impact of the lost revenue to be between 25%-30% across the business”.

The catering industry has been hit hard by closure of schools, offices, cultural, and sports events in Europe and other parts of the world. Compass provides food for office workers, armed forces, and school children in 45 countries around the world.

“The vast majority of our Sports & Leisure and Education business in these regions has been closed, and our Business & Industry volumes are being severely impacted,” the company said in a trading update.

Besides profit warnings, Compass warned last year that hundreds of jobs are in jeopardy due to the global economic slowdown. The coronavirus outbreak will now severely impact the catering business as many major companies around the world implement “work from home” policies.

Analysts from JP Morgan expect Compass’s full-year operating profit to be 12%lower.

Technical analysis: Multi-year lows

Shares of Compass Group are down almost 50% this month on a mouth-watering slump. Just a few months ago, in September, Compass stock price printed record highs above the £21.50 handle.

Compass Group monthly chart (TradingView)

As seen in the chart, the price action broke through the 100-MMA near the £12.50 handle, and is now approaching the ultimate support in the context of the 200-MMA at £8.09. This confluence of support levels, located between £8.09 and £9.30 may play a crucial role for the price developments in the coming weeks and months.

Summary

Shares of Compass Group are down 20%, totaling monthly losses to nearly 50% amid the coronavirus outbreak. This morning, the catering giant issued a profit and growth warning which fueled a major selloff in London.

By Michael Harris
I began trading in my early 20's at a local company and since then have combined my knowledge and love of content to become a news writer. I am passionate about bringing insightful articles to readers and hope to add some value to your portfolios!

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