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The ASX stocks that could enjoy a consensus earnings upgrade this reporting season

This reporting season is described as the worst on record for the S&P/ASX 200 Index (Index:^AXJO). But there are a few stocks that could get upgraded this month.

The problem is that we will likely see more downgrades than upgrades post results. While profit expectations are low for FY20, the market is pricing in a V-shape recovery in the current financial year.

ASX Christmas Grinch

That looks optimistic and even our prime minister pained a sombre outlook for Christmas. Up to 400,000 Aussies is expected to be out of work by the end of this year as Prime Minister Morrison is bracing for three quarters of negative growth, reported the SMH.

While stocks at the mercy of economic cycles may see their FY21 earnings downgraded further, consensus expectations for some healthcare stocks may be set too low.

That’s the view taken by Credit Suisse as it reviewed the sector before these companies hand in their profit results.

ASX stocks on upgrade cycle

The broker pointed to the Sonic Healthcare Limited (ASX: SHL) share price and Healius Ltd (ASX: HLS) share price as two cum-upgrade candidates.

“Both SHL and HLS have pre-announced FY20 results; as such, there is little earnings risk going into the results,” said Credit Suisse.

“In addition, both companies are benefitting from robust COVID-19 testing levels, which is more than offsetting any potential weakness in the base businesses.”

The broker’s FY21 forecast net profit for Sonic is 7% above the street and Healius is 20% ahead of consensus.

 Structural upgrade story

Another in the sector that I like is the Ansell Limited (ASX: ANN) share price. The glove maker is on the cusp of a structural shift, according to Credit Suisse, and I couldn’t agree more.

“We expect ANN to meet its FY20 guidance and expect strong growth for FY21 as the strong healthcare demand will persist through FY21,” added the broker.

The demand for personal protective equipment (PPE) is expected to stay stronger for longer even if a vaccine is found for COVID-19.

I believe the Ansell share price will continue to hit new record highs in FY21.

Possible reporting season downgraders

But not all healthcare stocks will see upgrades. In fact, Credit Suisse warns that two may even be hit by broker downgrades.

One at risk stock is the Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price. The stage four lockdown in Victoria will weigh on the hospital operator’s earnings growth for longer than expected.

Meanwhile, the Mayne Pharma Group Ltd (ASX: MYX) share price could also lose favour in the coming weeks.

The drug supplier is facing persistent and intense pricing pressure from generic medication and demand for its drugs is likely to be soft from the COVID-19 distraction.

If there is any delay in the launch of its generic NuvaRing in the current half, brokers may be forced to take an axe to FY21 estimates.

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Motley Fool contributor Brendon Lau owns shares of Ansell Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia has recommended Ansell Ltd., Ramsay Health Care Limited, and Sonic Healthcare Limited. 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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