May is a popular time of year for companies to announce expected earnings upgrades or downgrades. Goldman Sachs has put together its list of companies it expects to announce earnings revisions this May, as reported in the Australian Financial Review. Overall it's not pretty with Goldman expecting an average 2% decline in earnings expectations for ASX 200 companies. They believe that the market's expectations for an improved second half of FY15 are misplaced given the lack of evidence of an economic recovery in Australia.
Companies best placed to announce earnings upgrades are those with significant offshore earnings. These companies have had their valuations hit in recent weeks but Goldman believes the Australian dollar will resume its decline, providing these companies with substantial tailwinds.
Stocks singled out as likely to announce earnings upgrades include Qantas Airways Limited (ASX:QAN), Origin Energy Ltd (ASX:ORG), Flight Centre Travel Group Ltd (ASX:FLT), Challenger Ltd (ASX:CGF) and Ansell Limited (ASX:ANN). Airline and energy plays can be risky affairs so my picks out of these for longer term investors would be Challenger, which will continue to take advantage of the aging population with its popular annuity products, and Ansell, which has significant overseas earnings that will be multiplied by any continued fall in the Aussie dollar.
On the negative side, Goldmans believes that banks and resources stocks are most at risk. They say that the downside risks for banks are not fully priced in and that any recovery in commodity prices is likely to be short lived. Goldman predicts earnings downgrades for Myer Holdings Ltd (ASX:MYR), Bendigo and Adelaide Bank Ltd (ASX:BEN), Crown Resorts Ltd (ASX:CWN), Brambles Limited (ASX:BXB) and Monadelphous Group Limited (ASX:MND). I too would be steering clear of most of these, however, Crown Resorts, which has some challenges in Macau that may impact earnings in the near term has projects in the pipeline that should provide growth opportunities over the longer term.
If you are thinking beyond the upcoming earnings season and looking for buying opportunities to set you up for the long term, you should take a look at the Motley Fool's #1 stock for 2015.
