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Two stocks set to outperform this reporting season

This earnings season is expected to feature companies reporting reasonable profit growth as the Australian economy slowly transitions from the mining construction boom and the American economy continues to gather strength. While any profit growth is generally a positive, the majority is expected to come from cost cutting this earnings season, as opposed to revenue increases, due to the effect of low consumer and business confidence on spending.

Two companies which brokers believe will outperform this earnings season are Bendigo and Adelaide Bank (ASX: BEN), and Computershare (ASX: CPU).

Bendigo and Adelaide Bank reports its FY13 results on 19 August and is expected to generate a 5% earnings per share growth from the FY12 results. This may result in a rise in the dividend payout from the current 60 cents per share to 63 or 66 cents, representing a yield over 5.7%, fully franked. The company trades on a price-to-earnings ratio of around 12.3 times, below the sector average of 13.3, and has the lowest bad debt expense to loan value ratio in the industry.

Bendigo’s cost-cutting scheme has produced good results and the drop in wholesale funding costs is expected to provide a boost to profits at a time when property prices and funding approvals are rising. The drop in wholesale funding costs reduces the bank’s reliance on high-yielding customer deposits at a time when it’s looking to prise market share from the big four banks. Bendigo is in a strong position to demonstrate healthy growth in its loan book and profit in coming years.

Computershare reports its FY13 results on 14 August and is expected to generate earnings per share growth between 10% and 15% in US dollar terms. This may translate to as much as 20% in Australian dollars due to the recent favourable drop in exchange rate. The company is also expected to raise its dividend by around 10% from 28 cents to 31 cents per share, representing a yield of around 3%, partially franked.

In the past year the company has benefitted from the improving economy in the US, slowly improving conditions in Europe, lower Australian dollar, and higher bond yields/interest rates. The company isn’t over-exposed to the slowing Australian economy and should outperform in the medium term as the US and European economies continue to improve.

Foolish takeaway

Computershare and Bendigo and Adelaide Bank are two companies which may outperform this earnings season. Investors may receive strong returns over the medium term if the companies are able to match or beat earnings estimates.

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Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned in this article.

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