Morgan Stanley: ASX earnings season is topping expectations

ASX earnings season is upon us. And broker Morgan Stanley likes what it's seen so far from those having already reported. Let's take a look.

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As some of you more avid readers of the Fool (or just followers of the ASX share market) might have realised by now, ASX earnings season is in full swing. We have now heard from many of the ASX's biggest companies like Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS) as to how they fared over the second half of 2020 (or similar).

Today, reporting has ramped up further still. We've heard from JB Hi-Fi Limited (ASX: JBH), Altium Limited (ASX: ALU) and Seven West Media Ltd (ASX: SWM) this morning.

So how have these earnings reports been received so far? Well, according to one broker, very pleasingly.

According to a report in the Australian Financial Review (AFR) today, broker Morgan Stanley has been impressed with what it has seen so far from earnings season. The report states that close to half of the reported ASX shares that Morgan Stanley covers have recorded expected earnings per share (EPS) beats. A 'beat' means the metric a company delivered has come in higher than what analysts were expecting. Or what the company has previously guided.

Good news has these businesspeople cheering for joy, partying in a board room.

Image source: Getty Images

A 'so far, so good' for ASX shares from MS

The report states that 48% of Morgan Stanley's covered shares have beaten on EPS. Another 36% have reported EPS numbers in line with guidance or expectations, with only 16% missing the mark.

The numbers are equally encouraging for dividends per share. Reportedly, 38% of Morgan Stanley's covered companies have beaten expectations on dividends, with 48% delivering in line. Only 14% of the companies have undershot on this metric.

Turning to revenue metrics and we see a similar pattern again. Morgan Stanley advised that 38% of companies delivered revenue beats, with 50% giving investors in-line numbers and 13% missing the expected targets.

The AFR reports that Morgan Stanley's equity strategy team stated the following on these numbers:

Result season pace took a step up last week and early signals confirm a greater conviction to guide and generally confirm robust recovery pillars in place… Earnings per share beats are on show at 48 per cent and dividends per share is not far behind at 38 per cent but it seems the combined ratio of recovery profile, distribution conviction and earnings quality is satisfying investor appetite.

Judging by this analysis, ASX investors should be encouraged by the numbers we have seen so far this earnings season. Morgan Stanley's assessment of the "robust recovery pillars in place" bodes well for economic growth in 2021. Economic growth is, of course, strongly correlated with higher earnings from ASX companies. So hopefully, the good times will continue to roll for ASX investors.

Sebastian Bowen owns shares of Telstra Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends Altium. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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