Fundamentals vs Technicals: The stocks to watch this ASX earnings season

ASX earnings season is back, the twice a year ordeal for stock market analysts! Each day for a month, earnings results for Australia’s most prominent companies creates a wall of information to digest and convey to their eagerly waiting clients – each who’s waiting for the big call: Beat or Miss…Buy or Sell?

I suspect few stock market analysts are granted leave in August! This is because August means full year results, typically considered more important than February’s half-year counterpart. This year’s full year earnings season has already begun, with the trickle of companies reporting this week quickly turning into a deluge as we progress through August.

Good news investors! We’ve compiled an excellent ASX Earnings Season Calendar for you to use to stay ahead of all of the big upcoming earnings releases.

Major broker Macquarie has just released a research note detailing the ASX stocks it believes are most likely to beat or miss expectations this earnings season. In this article, I’ll compare Macquarie’s top picks with the charts of each to see if we can find a few where the technicals and fundamentals match – a potential match made in earnings season heaven!

Macquarie’s top ASX Earnings Season winners and losers

Fundamentals first! Overall, Macquarie expects FY24 earnings for ASX companies to be around 6% lower than last year. This is likely because growth in the local economy has slowed under the weight of interest rate hikes and cost of living pressures, and commodity prices have generally eased over the last 12 months as pandemic supply-side chain issues subsided.

Good news, though, the broker forecasts earnings to rebound strongly in FY25 – by around 10% – driven by an impressive 23% increase in the earnings for resources companies. Easing interest rates are likely to bolster earnings more broadly, and this is why Macquarie believes investors will look past the FY24 earnings dip.

Earnings growth forecasts will be crucial, however, making this earnings season one of the most important of the last few years. On this point, there are some worrying signs that Aussie companies are potentially struggling. Macquarie notes that since mid-May, consensus EPS revisions have been growing “increasingly negative” with net downgrades of around 14% so far this month.

“Unfortunately, downgrades are likely to continue in August, which is seasonally the worst month for revisions”, the broker notes. Macquarie suspects companies are likely to provide conservative FY25 guidance this time around, and this increases the risks of downgrades.

There are 3 main factors investors must watch out for this earnings season, says Macquarie:

1. Companies with a large skew towards H2 earnings

This refers to companies which tend to earn the bulk of their full year earnings in the second half (i.e., this half). Many of these companies delivered below-expectations half-year results, promising the market they’d make it up by the end of the financial year. If they’ve missed, they could be harshly dealt with by investors.

The companies Macquarie believes are most at risk of surprising on the downside with respect to this factor are:  Ramsay Health Care (ASX: RHC), Domain Australia (ASX: DHG), and Medibank Private (ASX: MPL).

The company Macquarie believes could surprise on the upside with respect to this factor is: Reliance Worldwide Corporation (ASX: RWC).

2. Companies which have consensus estimates for margin expansion that are too optimistic

A company’s margin is essential to its profitability. It’s the difference between what it sells and what it costs to sell it. A company that’s seeing growing margins is more likely to deliver strong earnings growth. Macquarie contends there are several ASX companies that have very high consensus estimates of their margin growth than it thinks is warranted.

The companies Macquarie believes are most at risk of surprising on the downside with respect to this factor are: Seek (ASX: SEK), Iress (ASX: IRE), Healius (ASX: HLS), Domino's Pizza Enterprises (ASX: DMP), and Downer EDI (ASX: DOW).

3. Companies that have already seen their consensus estimates upgraded/downgraded

Companies that previously enjoyed +20% earnings per share (EPS) upgrades tend to beat next time they report, while companies that previously suffered +20% EPS downgrades tend to miss next time they report, says Macquarie.

The companies Macquarie believes are most at risk of surprising on the downside with respect to this factor are: Sonic Healthcare (ASX: SHL), Seek, Ramsay Health Care, IDP Education (ASX: IEL), Domino's Pizza Enterprises, Downer EDI, NIB (ASX: NHF), Collins Foods (ASX: CKF), Nufarm (ASX: NUF), Eagers Automotive (ASX: APE), and The Star Entertainment Group (ASX: SGR).

The companies Macquarie believes could surprise on the upside with respect to this factor are: Aristocrat Leisure (ASX: ALL), Steadfast Group (ASX: SDF), Pro Medicus (ASX: PME), ALS (ASX: ALQ), and REA Group (ASX: REA).

(Not in the +20% club, but identified as experiencing consensus estimate upgrades, and where consensus is greater than 5% below Macquarie’s own forecasts (this is a good thing!) are: Computershare (ASX: CPU) and Origin Energy (ASX: ORG).

What do the charts say?

Now for the technicals! I won’t do the charts for all of Macquarie’s most prospective winners and losers, I’ll just cherry pick those I feel have the strongest coincident trends. In this way, I hope to identify for you the stocks where the fundamentals and technicals are most consistent, i.e., those most likely to beat market expectations and those most likely to miss them.

Let’s start with the most likely from the fundamentals and technicals to deliver worse than expected earnings this earnings season:  

Ramsay Health Care (ASX: RHC)

Ramsay Health Care chart

The RHC chart is a picture of excess supply. Evidence of this includes:

1. Well established short and long term downtrends: Indicates pervasive distribution

2. Poor price action (i.e. falling peaks and falling troughs): Indicates supply reinforcement and demand removal

3. A predominance of supply-side candles (i.e., those with black bodies and or upward pointing shadows): Indicates the likely existence of pervasive programmed sell orders

There’s nothing in this chart that contradicts Macquarie’s assessment RHC may be at risk of delivering a disappointing earnings result.

Domino's Pizza Enterprises (ASX: DMP)

Domino's Pizza Enterprises chart

I note DMP exhibits each of the same trend, price action, and candle factors discussed in the technical analysis of the RHC chart. There’s nothing in this chart that contradicts Macquarie’s assessment DMP may be at risk of delivering a disappointing earnings result.

Collins Foods (ASX: CKF)

Collins Foods chart

I note CKF exhibits each of the same trend, price action, and candle factors discussed in the technical analysis of the RHC chart. There’s nothing in this chart that contradicts Macquarie’s assessment CKF may be at risk of delivering a disappointing earnings result.

Eagers Automotive (ASX: APE)

Eagers Automotive chart

I note APE exhibits each of the same trend, price action, and candle factors discussed in the technical analysis of the RHC chart. There’s nothing in this chart that contradicts Macquarie’s assessment APE may be at risk of delivering a disappointing earnings result.

Now for the ASX stocks most likely from the fundamentals and technicals to deliver better than expected earnings this earnings season:

Aristocrat Leisure (ASX: ALL)

Aristocrat Leisure chart

The ALL chart is a picture of excess demand. Evidence of this includes:

1. Well established short and long term uptrends: Indicates pervasive accumulation

2. Good price action (i.e. rising peaks and rising troughs): Indicates demand reinforcement and supply removal

3. A predominance of supply-side candles (i.e., those with white bodies and or downward pointing shadows): Indicates the likely existence of pervasive programmed buy orders

There’s nothing in this chart that contradicts Macquarie’s assessment ALL may be likely to deliver a better than expected earnings result.

Steadfast Group (ASX: SDF)

Steadfast Group chart

I note SDF exhibits each of the same trend, price action, and candle factors discussed in the technical analysis of the ALL chart. There’s nothing in this chart that contradicts Macquarie’s assessment SDF may be likely to deliver a better than expected earnings result.

ALS (ASX: ALQ)

ALS chart

I note ALQ exhibits each of the same trend, price action, and candle factors discussed in the technical analysis of the ALL chart. There’s nothing in this chart that contradicts Macquarie’s assessment ALQ may be likely to deliver a better than expected earnings result.

Computershare (ASX: CPU)

Computershare chart

I note CPU exhibits each of the same trend, price action, and candle factors discussed in the technical analysis of the ALL chart. There’s nothing in this chart that contradicts Macquarie’s assessment CPU may be likely to deliver a better than expected earnings result.

I've written a guide for technical traders during earnings season: Trend trading during ASX earnings season: Tips to tame the traps

For those looking to learn more about my technical approach and how to adapt it to the volatility of earnings season, be sure to check it out! 📈