ASX investors should be nervous. Next month’s reporting season is expected to throw up more than its fair share of surprises given that the global economy is being pulled in different directions by the trade war, dovish central bankers and nervous consumers.
Credit Suisse is also warning investors to brace for increased volatility given our stretched market valuation and the volume of pre-season profit warnings.
But this isn’t to say we won’t get some pleasant earnings surprises in August and the broker has peered into its crystal ball to pick those most likely to be kicking goals during the ASX profit season.
It filtered the list by looking at stocks under its coverage that has an “outperform” rating but where its target price and FY20 forecast earnings per share (EPS) are above consensus expectations.
There are 17 S&P/ASX 200 (Index:^AXJO) (ASX:XJO) stocks on this list and some of the more notable ones in my view are listed below:
Macquarie Group Ltd (ASX: MQG): Volatile capital markets, falling bond yields and the turmoil at Deutsche Bank are clouding over the investment bank’s outlook. This hasn’t stopped Credit Suisse from anticipating an earnings beat from the “Millionaire’s Factory”. The broker’s FY20 EPS estimate is 4% above consensus.
Link Administration Holdings Ltd (ASX: LNK): The investment platform provider has been battered by a profit warning in May that is largely driven by the Brexit uncertainty weighing on its UK operations and regulatory changes to protect small Australian superannuation accounts from being eroded by fees. But Credit Suisse thinks too much bad news is priced in and its FY20 EPS forecast sits 18% ahead of the average broker estimate.
Nufarm Limited (ASX: NUF): The crop protection and seed company is another with the potential to unveil a better than expected result. Nufarm reports its full year result in September as it has a July 31 financial year end. The company has issued a profit warning due to adverse weather and is at risk of legal action stemming from the sale of glyphosate. However, Credit Suisse thinks Nufarm represents a value play and has a price target that is 37% above the consensus average. This means we could see upgrades if the market starts refocusing on its growth potential from its omega-3 infused seeds and its European operations.
Webjet Limited (ASX: WEB): A profit warning from its UK partner Thomas Cook and weak discretionary spending on big-ticket items have created a large dispersion in analysts’ forecasts for the online travel group. If Credit Suisse is right, we could see a relative large re-rating in the stock given that the broker’s FY19 and FY20 EPS forecasts are 10% and 14% above consensus mean, respectively.
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Brendon Lau owns shares of Macquarie Group Limited and Nufarm Limited. Connect with him on Twitter @brenlau.
The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Link Administration Holdings Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool Australia has recommended Link Administration Holdings Ltd and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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