Goldman Sachs flags 11 ASX 200 stocks to watch this 'confession' season

The market's unofficial “confession season” is underway, and expectations are being tested. With most ASX-listed companies yet to update markets on their March quarter trading, analysts are bracing for a wave of earnings downgrades as companies adjust full-year expectations.

Goldman Sachs warns that, to hit FY25 consensus earnings, the average company would need to post its strongest second-half results in 20 years. While early trading updates have triggered average downgrades of around 1%, share prices have generally outperformed on the day, suggesting investors had been expecting worse.

The broader market, meanwhile, has already priced in optimism. The ASX 200 is now trading 2% above pre-"Liberation Day" levels. With valuations elevated and the equity risk premium near two-decade lows, the bar for positive surprises is getting higher.

The Macro Landscape: Mixed Signals

Despite global uncertainty — including tariff shifts, China-US tensions, and election noise — Goldman says Australian domestic activity remains steady, though still below trend. Retail sales are climbing modestly from last year’s lows, but consumer sentiment has taken a hit after recent tariff announcements.

Encouragingly, corporate margin pressures are easing. Labour costs are slowing, borrowing expenses have declined, and the Australian dollar remains 3-5% weaker this half, benefiting exporters.

Globally, US earnings remain resilient, but Chinese exporters are under pressure — with up to 40% experiencing a 50% drop in US-bound volumes. This could push cheaper goods toward Australia, offering a margin boost for local importers.

Companies That Could Surprise to the Upside

Goldman Sachs analysts believe the following list of names are most likely to surprise

• Xero (ASX: XRO): Strong app download data (+295,000 year-to-date) points to subscriber growth well above consensus. The accounting software firm is also benefiting from competitor price hikes and stable margins, with attention now turning to its FY26 growth outlook.

• Bluescope Steel (ASX: BSL): Upgraded US steel price forecasts and falling raw material costs (especially iron ore and coal) suggest upside risk to 2H25 earnings. The US operations are a key swing factor.

• Codan (ASX: CDA): The communications and metal detection tech firm is tracking ahead of expectations. Recent acquisitions, a favourable FX backdrop, and strong gold prices — particularly in African markets — could lift second-half performance.

• QBE Insurance (ASX: QBE): With commercial premium rates holding up and catastrophe losses manageable, QBE is positioned to meet or exceed its FY25 combined operating ratio guidance. Capital returns are also on the table thanks to strong balance sheet metrics.

Here's a ratings and target price summary for the above positive surprise candidates.

Names Facing Downside Risk

• Spark New Zealand (ASX: SPK): Mobile revenue is expected to fall short of guidance despite an assumed rebound in 2H. Market competition and macro challenges continue to weigh.

• Orora (ASX: ORA): Tariff distortions are clouding visibility on Saverglass’s order book, and despite strong improvement flagged earlier, conversion into actual sales remains questionable.

• Computershare (ASX: CPU): Macro uncertainty could hurt cyclical transaction revenues and margin balances in FY26, though FY25 guidance appears intact. Valuation now limits upside.

• Endeavour Group (ASX: EDV): Sales at Dan Murphy’s and BWS continue to slide, and growth in hotels is slowing. Share losses from previous industrial action are still playing out.

• Fletcher Building (ASX: FBU): Construction volumes remain under pressure in New Zealand. Rate cuts haven’t yet flowed through to activity, and intense competition clouds any recovery.

• IDP Education (ASX: IEL): International student volumes are being downgraded further. IDP is holding market share, but the bar for outperformance is rising.

• Healius (ASX: HLS): With pathology funding likely to tighten and EBIT margins still near zero, management’s FY27 targets look ambitious. Operational changes may take years to bear fruit.

Here's a table summarising the analyst ratings and twelve-month target prices for the above negative surprise candidates.

The Bottom Line

As the May confession season ramps up, volatility is expected to rise. Goldman Sachs says investors should be wary of companies trading on stretched valuations without near-term earnings support. Still, pockets of upside remain — particularly among companies with strong pricing power, FX tailwinds, or exposure to stable global markets.