11 stocks hit by post-earnings plummets of more than 5%: Is the dip worth buying?

Reporting season can often be brutal for companies that miss market expectations. The aftermath can be just as painful as analysts revise their forecasts and price targets, triggering volatile price action over the next couple of days or even weeks.

There have so far been eleven larger cap companies (since Wednesday) that have staged declines of more than 5% on the day of their half year or full-year results. In this piece, I'll provide a one liner (may or may not be more than one line) for the result and whether or not brokers see any value in the beaten-up stocks.

11 Reporting season losers

Note: The % fall refers to share price performance on the day of the result

In a nutshell

In summary, most broker updates (post results) were Neutral rated and price targets tend to hover slightly above current prices. More broadly speaking, the commentary was cautious and acknowledged the respective shortcomings/risks for each company.

The ones that bucked the above trend include:

• Treasury Wine

• Commonwealth Bank

• JB Hi-Fi

• Nick Scali

Treasury Wine Estates (ASX: TWE)

One liner: Net profits rose 18.7% to $193.7 million, with global wine category consumer trends broadly consistent. Luxury wine category sowing strong growth trends across all key markets. EBIT margins slightly higher at 23.9%.

Macquarie's take: The result missed expectations, driven by softer volumes for Treasury America and Premium brands. Penfolds was the standout, with volumes up 4.4% and NSR up 2.6%. Macquarie notes some softness over the first half but management have "excelled at reinvesting in the Penfolds brand."

• Retained an OUTPERFORM rating

• "We see medium-term upside to exports and believe there is significant opportunity to further leverage the Frank Family Vineyards assets in the US."

• $14.90 target price ($13.35 close on Wednesday)

Commonwealth Bank (ASX: CBA)

Oner liner: 1H earnings were mixed compared to consensus (net income slight beat but net interest margin was a slight miss). Commentary was soft with expectations of business credit growth and margin tailwinds to moderate.

Macquarie's take: The cautious margin outlook overshadowed what was otherwise a "strong" 1H23 performance. Macquarie sees downside risk to bank valuations "as the earnings upgrade cycle turns and margin headwinds emerge."

• Retained an UNDERPERFORM rating

• "CBA is trading at ~18x PE multiple which is a ~40-65% premium to peers."

• $94.00 target price ($103.00 close on Wednesday)

Temple & Webster (ASX: TPW)

One liner: Revenue in-line with FactSet estimates, adjusted EBITDA beat. Sales for the first five weeks of 2H23 was down 7%. The company said it will continue to focus on margin optimisation and reiterated EBITDA margin guidance of 3-5%.

Macquarie's take: The result was ahead of forecasts due to lower advertising cost. Management reiterated the margin guidance, which sees the lower marketing spend trend continue. The company's balance sheet is strong, with $102.4 million cash (relative to ~$450 million market cap) and no debt. This also provides headroom for M&A opportunities.

• Upgraded the stock to NEUTRAL from Underperform

• "We still see near-term risk to sales given macro headwinds. We move to Neutral as we see risks appropriately captured in current share price."

• Target price of $4.00 ($3.62 close on Tuesday)

Ansell (ASX: ANN)

One liner: Revenue, net profit and dividend missed analyst estimates. Downgraded full-year EPS guidance to between $1.10 and $1.20 from a range of $1.15 to $1.35.

Morgan Stanley's take: The weak result reflected destocking efforts in exam/SU and life sciences segments as well as currency impacts. The revenue figure of $835.3 million was considered a 'big miss' and margins remained under pressure. The earnings downgrade reflected further destocking efforts, which is expected to moderate in the second half but offset by less favourable surgical demand.

• Retained an EQUAL-WEIGHT rating

• Target price of $28.77 ($25.64 close on Tuesday)

Breville Group (ASX: BRG)

One liner: Revenue and net profit missed analyst estimates. Gross margins rose 1 percentage point to 35.1% reflecting solid cross control. Expects full-year EBIT between $165-172 million (up 5.5% to 10% vs the prior corresponding period).

Macquarie's take: The earnings miss reflected destocking efforts in the EMEA region and Nespresso supply disruptions. Costs and margins were well controlled and the FY23 outlook was positive despite macro headwinds.

• Retained a NEUTRAL rating

• "While Breville has managed the current macro environment well, the key risk remains that sales in North America moderate more than our expectations."

• Target price of $21.25 ($20.68 close on Tuesday)

Star Entertainment (ASX: SGR)

One liner: EBITDA was in-line with consensus of $211-212 million. Group revenue was 1% shy of pre-COVID levels. The company faces a $400 million to $1.6 billion non-cash impairment charge in relation to NSW business.

Macquarie's take: Macquarie expects proportional EBITDA to be $319 million (previously $476 million) which reflects a $100 million impact from the proposed 12% increase in domestic gaming tax rate, $40 million of operating performance initiatives and the opening of Queen's Wharf Brisbane in 2024.

• Retained a NEUTRAL rating but highlighted several risks including deteriorating macro environment, possible ongoing impacts from reforms to domestic gaming, penalties associated with AUSTRAC investigations

• "The earnings outlook is challenging with regulatory change and higher taxes. High leverage poses a risk to an equity raise sitting at 3.8x in FY24."

• Target price of $1.55 ($1.28 close on Tuesday)

Aurizon (ASX: AZJ)

One liner: Revenue beat but net profit miss ($169 million versus FactSet estimates of $250.8 million). Guidance was downgraded to $1.42-1.47 billion from prior $1.47-1.55 billion reflecting prolonged wet weather and two-week Blackwater derailment outage.

Citi's take: The result was a "material miss, with limited positives". The key takeaway for Citi was an increased investment in Bulk (rail, road and port transportation/services) at the expense of dividends.

• Retained a NEUTRAL rating

• "With less yield support going forward, we are cautious, as Bulk growth continues to appear longer dated and potentially at a cyclical high."

• Target price of $3.70 ($3.34 close on Tuesday)

Fletcher Building (ASX: FBU)

One liner: Huge net profit miss (NZ$92 million versus FactSet $239.6 million) due to NZ$150 million in construction provisions. Management expect "softening of residential markets to continue into FY24", which will "reduce volumes in our materials and distribution businesses by circa 10% to 15%."

Morgan Stanley's take: The main reason for the earnings miss was due to Residential and Development segments, where earnings came in at less than half of MS estimates. Wet weather conditions in January and February will materially affect full-year results. MS note that "both the NZ and Australian housing cycles peaked well above long-run averages, suggesting the risk of meaningful peak to trough declines".

• Retained an EQUAL-WEIGHT rating

• "With the cycle at or past peak we see risk to earnings and sentiment as activity normalises ... FY24e P/E of 8x is the lowest among our building materials universe, complimented by a 7.8% dividend yield."

• Target price of $5.00 ($4.56 close on Tuesday)

JB Hi-Fi (ASX: JBH)

One liner: JB Hi-Fi pre-announced its half-year earnings, so there were no surprises there. However, this comment from CEO Terry Smart says everything you need to know: "we have seen sales growth start to moderate from the elevated levels seen in the first half of FY23."

Macquarie's take: January trading update flags softening demand across segments like electronics and home appliances. Macquarie notes that January 2022 had "unusually soft foot traffic." The results were strong but the note remains cautious on the consumer over 2023 as cost of living and macro pressures persist.

• Retained an UNDERPERFORM rating

• "Notwithstanding its best-in-class offering, we remain cautious on consumer over 2023 as cost of living and macroeconomic pressures continue."

• Target price of $42.40 ($44.82 close on Tuesday)

AGL Energy (ASX: AGL)

One liner: Underlying net profit fell -55% to $87 million but statutory losses ballooned to $1.1 billion thanks to $706 million in impairment charges relating to decarbonisation plans. AGL expects to benefit from electricity pricing resets between FY24-25.

Morgan Stanley's take: Things look positive beyond FY23. Electricity forward curves in FY24 suggest an uplift of ~$14/MWh.

• Retained EQUAL-WEIGHT rating

• Target price of $8.01 ($6.49 close on Tuesday)

Nick Scali (ASX: NCK)

One liner: Solid result with half year net profits at $60.6 million vs. $35.6 million a year ago) but market decided to focus on the company's deteriorating performance and weak outlook.

Citi's take: The net profit result was ahead of Citi estimates and the company's guidance given on 24 November 2022. Customer deposits were down -26% on the prior period, flagging both easing supply chain delays and slowing demand.

• Retained BUY rating

• "Nick Scali is doing better than expected on gross margins and costs, however it’s possible that the stock could trade down given the slowing top-line and the weak start to CY23."

• Target price of $15.83 ($10.35 close on Tuesday)