Expectations for S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stocks heading into the reporting season are low and seem to be getting lower!
You can blame the volatile global geo-political environment, credit squeeze, the housing slump and the much-anticipated final report from the Hynes Royal Commission for the market anxiety.
However, there are some sectors that are well placed to buck the weak earnings growth trend when they hand in their report card later this month, according to UBS.
Pockets of growth
These ASX sectors would be the standouts given that profit growth is forecast to weaken in FY19.
"After 2 years of robust growth, the Australian market is expected to deliver a below trend 4.3% pace of earnings growth in FY19," said UBS.
"The moderation in earnings growth mostly reflects resources slowing from 25% in FY18 to 6.5%, but also reflects the market ex-resources & ex-financials dropping to just 1% growth in FY19 (from 6.8% in FY18)."
What's also concerning is the number of companies issuing profit warnings versus those upgrading profit expectations during the "confession season". UBS noted that there are five profit downgrades for every one profit upgrade.
The confession season is the period before the reporting season where companies are obliged to correct market expectations.
"However, despite soft aggregate earnings, there remain pockets of decent growth. Health Care, Consumer Staples, Gaming and Other Financials are all expected to deliver at least a near double digit pace of earnings growth," said UBS.
"Meanwhile at spot prices, the Mining & Metals sector remains cum-upgrade."
ASX reporting season winners and losers
UBS thinks the large caps with the potential to deliver an earnings surprise this month include power utility AGL Energy Limited (ASX: AGL), engineering and construction giant Cimic Group Ltd (ASX: CIM), fast food group Domino's Pizza Enterprises Ltd. (ASX: DMP) and electronics and whitegoods retailer JB Hi-Fi Limited (ASX: JBH).
On the flipside, ASX 200 companies that are at risk of unveiling an unpleasant surprise over the next few weeks include steel products maker BlueScope Steel Limited (ASX: BSL), beverage group Coca-Cola Amatil Ltd (ASX: CCL), supermarket operator Coles Group Ltd (ASX: COL) and building materials supplier James Hardie Industries plc (ASX: JHX).
