Recently, analysts from broker Morgan Stanley released a calendar covering the ASX stocks and sectors to watch. Here are 3 themes that have analysts intrigued in this February's reporting season.
Iron ore miners
With the iron ore price surging, analysts have miners BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) on their shortlist. Analysts expect these miners to lift their dividend payout ratios this reporting season on the back of elevated earnings, lack of capital expenditure commitments and healthy balance sheets.
BHP is expected to use its cash flow to elevate its interim dividend payout and there is also a high probability the miner could announce a share buyback given its large franking credit balance. Analysts also expect the iron ore price to drive earnings for Rio, forecasting a 44% growth in earnings per share (EPS).
BHP is due to report on 18 February and Rio is set to report on 26 February.
Bushfires and drought
With several companies having already issued trading updates on the impact of bushfires and drought on earnings, analysts expect volatile results from other companies that may have been affected.
Insurance Australia Group Ltd (ASX: IAG) is one such company that has cited the negative impact of bushfires on its trading performance. The insurer released an update earlier this year citing that natural hazard losses for the first half of FY20 will be $80 million above allowances due to bushfire-related claims. Analysts forecast an insurance margin of 15% for IAG and net profit after tax (NPAT) of $440 million for the first half.
Bega Cheese Ltd (ASX: BGA) has also cited the impact of ongoing drought conditions and bushfires with analyst anticipating a 15% fall in earnings before interest, tax, depreciation and amortisation (EBITDA) and forecasting a 33% decline in NPAT for the first half of FY20. According to analysts, falling milk supply due to drought and fierce sector competition will trouble Bega going forward.
IAG is due to report on 12 February and Bega is set to report on 27 February.
Retail and consumer behaviour
Following a strong Christmas trading period, analysts expect JB Hi-Fi Limited (ASX: JBH) to report strong growth in the first half while also factoring the potential for margins to surprise. Full year sales guidance for FY20 is expected to be conservative, however analysts think JB Hi-Fi's guidance for NPAT could surprise.
Analysts have an 'add' rating on Baby Bunting Group Ltd (ASX: BBN) with the retailer expected to report a 38% growth in EBITDA for the first half. However, given a strong first-half performance, analysts estimate full-year guidance for FY20 could be conservative.
JB Hi-Fi is due to report on 10 February and Baby Bunting is set to report on 14 February.
Should you buy?
Reporting season can be extremely volatile and it would be counterintuitive for investors to buy shares in a company anticipating a positive report. In my opinion, a prudent strategy would be to keep a watchlist of companies that beat expectations and wait for share price consolidation before making an investment decision.
