ASX reporting season playbook – Follow the stocks that beat earnings expectations
An earnings beat can drive a sustained share price re-rating, backed by strong volumes and analyst upgrades.
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KEY POINTS
- Companies that beat earnings expectations tend to outperform, with an average 5.2% gain on results day and 6.7% over four months, according to Bell Potter’s Richard Coppleson
- Brambles, JB Hi-Fi, and WiseTech delivered strong results, triggering sharp share price rallies, dividend upgrades, and broker target price increases
- A significant earnings beat can drive a sustained re-rating, with strong volume and analyst revisions supporting continued upside post-results
Tracking companies that outperform earnings expectations has consistently been one of the most effective strategies for finding winning stocks during reporting season.
Over the past 16 reporting seasons (2008-2024), companies whose results beat expectations delivered an average rally of 5.2% on the day of the result, according to Bell Potter's Richard Coppleson. The momentum also tends to persist, with these "winners" up 6.7% over the next four months.
"Buy the stocks that are up on day one — or more importantly, resist the urge to sell after a significant upside move, as shorts will likely cover in the weeks ahead," advises The Coppo Report.
Reporting season fundamentally shifts the narrative for stocks. In the absence of updates, share prices are largely dictated by broader market trends, macroeconomic conditions and buyer-seller dynamics. But a financial result injects fresh information, often altering a stock’s trajectory, analyst estimates and investor perceptions.
As market participants from traders and investors, to analysts and fund managers digest the news – the stock may find itself amid a sharp re-rating, that can unfold over days, if not weeks.
Now – averages and storytelling is one thing. But how about a few examples from the most recent reporting season?
Brambles – Unexpected Growth
Brambles (ASX: BXB) manages the world’s largest pool of reusable pallets, crates and containers. It’s a defensive business that’s managed to grow its EBITDA by approximately 5.4% per annum over the past decade.
During the August 2024 reporting season, Brambles unexpectedly crushed market expectations (below estimates refer to Morgan Stanley forecasts before the result):
Sales up 8% to US$6.54 billion (in line with estimates)
Operating profit after tax up 19% to US$778 million (4.7% beat)
Total FY24 dividend of 34 US cents (17% beat)
FY25 underlying profit growth guidance between 8-11% (vs. 7.2% estimates)
The re-rate was not only sharp but a rather sustained one.
Day of the result (21 Aug) – Shares up 9.2%
The next day (22 Aug) – Shares up 5.3%
By year-end (23 Aug – 31 Dec) – Shares up 6.9% (excl dividends)
Brambles daily price chart (Source: TradingView)
There were a number of clues as to why Brambles experienced such a strong and sustained move. Here are a few of them
Broker response: Brokers including Citi, Goldman Sachs, JPMorgan, Macquarie, Morgan Stanley and UBS upgraded their target prices by an average 11.8% after the result
Forecasts: Brambles operates a relatively predictable business – Therefore, an upside of such magnitude calls for a sharp revision
Dividends: FY24 dividends smashed expectations. This may attract further inflows from income-oriented investors and funds
Volume: The stock experienced 9.62m volume on the day of the result vs. 20-day average of 2.97m (or 223% increase). This suggests a massive influx of new and likely high conviction shareholders
JB Hi-Fi – Retail Resilience
JB Hi-Fi (ASX: JBH) was one of many retail stocks that smashed FY24 earnings expectations. While earnings went backwards year-on-year, the numbers were much better-than-feared.
Total sales down 0.4% to $9.59 billion
Net profit after tax down 16.4% to $438.8 million (3.7% ahead of consensus)
Full-year ordinary dividend down 16.3% to $2.61 per share (6.0% ahead of Citi estimates of $2.46)
A special dividend of 80 cents per share fully franked (so technically the full-year dividend was 38% ahead of estimates)
Similar to Brambles – you have a scenario where the company has topped both earnings and dividend expectations. For a retailer like JB Hi-Fi, this implies drivers like effective promotional strategies, margin resilience and strong cost management. All the good stuff you'd want to see in a retail company.
The price action was also very similar.
Day of the result (12 Aug) – Shares up 8.3%
The next day (13 Aug) – Shares up 4.0%
By year-end (14 Aug – 31 Dec) – Shares up 21.5% (excl dividends)
JB Hi-Fi daily price chart (Source: TradingView)
Post earnings, sentiment towards the stock was mixed. While some analysts were bullish on the company's ability to sustain its growth and margins, others were more cautious, citing valuation concerns and the potential for increased competition. Despite the mixed views, the better-than-expected result still forced analysts to upgrade their target prices. The average target across 14 sell-side ratings was increased 6.4% to $64.47 after results day.
WiseTech – Blockbuster Growth
WiseTech (ASX: WTC) has been a formidable growth story that hit a wall late last year due to internal issues. Drama aside, the company topped earnings expectations last August.
Revenue up 28% to $1.04 billion
Underlying net profit up 15% to $283.5 million (6.0% ahead of Goldman Sachs estimates)
Total dividend for FY24 of 16.9 cents (5.6% beat)
FY25 EBITDA guidance of $680 million (8% beat)
Heading into the result, Goldman Sachs was Neutral-rated with a $91 target price (WiseTech was trading around the mid-90s).
"The organic revenue growth outlook for Cargowise remains a key focus area ahead of its FY24 result ... we believe it needs to accelerate towards circa 30% in FY25e to meet consensus expectations and management commentary around its ability to sustain growth," the note said.
WiseTech delivered on both, with FY24 margins up 100 bps to 48% and FY25 EBITDA guidance pointing towards 37% year-on-year growth. Cargowise revenue was another positive surprise, up 33% to $88.3 million, underpinned by M&A and new large global freight forwarder rollouts.
Again, the price action was relatively similar (until the CEO scandal started to affect the company around mid-October 2024).
Day of the result (21 Aug) – Shares up 18.3%
The next day (22 Aug) – Shares up 7.7%
Post-earnings to peak (23 Aug - 1 Oct) – Up another 14.6%
Wisetech daily price chart (Source: TradingView)
Bottom Line
A meaningful earnings beat can create a massive tailwind for a stock. While I’ve highlighted just three examples, they come from different sectors, with various drivers behind their beats.
If that’s not convincing enough, here are a few more companies that delivered strong earnings beats last August—most of which share similar chart patterns with the examples above.
Notably, I haven’t included stocks from the Materials and Energy sectors. While these companies may exceed market expectations, their performance ultimately depends on the underlying commodity.
