Friday marks the end to week one of the official earnings season.
With the S&P/ASX 200 Index (ASX: XJO) trading relatively flat over the course of the week, one may be forgiven for missing this week's big movers and shakers. That's why I thought it would be worth doing a quick recap of three of this week's stocks – – Downer EDI Limited (ASX: DOW), OFX Group Ltd (ASX: OFX) and Virtus Health Ltd (ASX: VRT) – which gave the biggest surprises to the market (and not necessarily for the better).
Downer
Downer surprised the market on Thursday after announcing an unexpected profit upgrade.
Shares in the mining, building and infrastructure services giant surged over 13% on Thursday as management lifted its profit guidance for full-year 2017 to $175 million (from $163 million).
The increase in expected profit comes as work-in-hand swelled 13% to $21.1 billion as a result of states across Australia upgrading their rail and transport infrastructure – an area Downer has expertise in.
Given the surprisingly strong results, investors looking to ride this trend should keep any eye on CIMIC Group Ltd (ASX: CIM), Monadelphous Group Limited (ASX: MND) and Lendlease Group (ASX: LLC) as all three have potential to provide similar upside over the coming weeks.
OFX
OFX disappointed on Wednesday after management revised its full-year net profit forecast down to $19 million. Driving the downgrade is an expected 22% to 24% drop in earnings (EBTDA) as poor transaction volumes in the aftermath to Brexit bite.
With the company also announcing a change to CEO Richard Kimber, shareholders headed for the exit, sending the stock down over 18% on Wednesday trade.
Although the stock rebounded marginally on Thursday, up over 5% to close at $1.34, I believe companies reliant on British trade like CYBG CDIs (ASX: CYB) and Henderson Group plc (ASX: HGG) are best avoided for now.
Virtus
As I wrote about here, Virtus shocked the market on Tuesday after revealing that slow domestic IVF cycles volumes are likely to materially impact full-year profit if trends continue. This is because Virtus continues to lose market share to low-cost IVF providers as a result.
Accordingly, Virtus' shares sold off on Tuesday, slumping over 17% before mounting a mild recovery during the week.
Fellow IVF provider Monash IVF Group Ltd (ASX: MVF) suffered similarly due to concerns over the health of the industry, with its shares currently down 9% for the week. However, I believe the stock should be on everyone's watch list ahead of its results release on 20 February, given Virtus' demise appears to be caused by company specific problems.
Foolish takeaway
Long-term investors should never buy a stock based on the results of another company – that's tantamount to speculative investing.
However, savvy investors who perform proper due diligence and glean industry trends from similar companies can be quite successful over the long-term.
Accordingly, investors should look deeper into Downer, OFX and Virtus' results to find comparative companies which could surprise (either way) over the remainder of the earnings season.
