\n\tBy Greg Peel<\/p>\n
\n\tThe US March quarter reporting season kicked off this week with a disappointing result from aluminium producer Alcoa, but quickly spun on solid results for chip-maker Intel, commercial bank JP Morgan Chase, fast food chain owner Yum Brands and the United Parcel Service. That's a good spread to begin with, but there's a long way to go yet.<\/p>\n
\n\tWe are heading into this reporting season, RBS suggests, with both the US and Australian stock markets looking fairly valued, trading at or above their long-run mean price\/earnings ratios. Earnings revision cycles in both countries are flat, says RBS, implying confirmation of already well-priced expectations is needed. The analysts believe this US season is a “significant sign post” for both markets.<\/p>\n
\n\tWith the S&P 500 having reclaimed 1200 last night and the ASX 200 trading over 5000 this morning we can now say that the Lehman-inspired GFC levels have been recovered. What happens from here, however, will be dependent in the short-term on whether US companies can match or exceed expectations. All four quarters of 2009 in the US delivered earnings growth, but only the fourth quarter delivered revenue growth. Cost-cutting was the basis of earnings improvement ahead of the December quarter, so it is imperative the March quarter shows a continuation of the trend of improving revenues. Only then can it honestly be said the US economy is recovering.<\/p>\n
\n\tThe December quarter brought 8% revenue growth and RBS is looking for 12% in the March quarter, with energy (36%) and financials (15%) the highest contributing sectors. RBS is expecting 31% earnings growth in March which seems like a lot, but in December the market was looking for 81% and got 89%. Here IT (32%), financials (19%) and consumer discretionary (16%) are expected to be the main contributors.<\/p>\n
\n\tThe quarterly reporting season lasts a good six weeks so expect some potential volatility ahead, notwithstanding any further developments out of Europe or Chinese monetary policy moves. The Chinese first quarter GDP released this morning came in at 11.9% growth against 11.5% expectation and Premier Wen Jiabao wants to get that number back to 8%. Monetary tightening is inevitable.<\/p>\n
\n\tAside from the upcoming round of bank results, the Australian full-year reporting season is concentrated in August, which a-ways off. Nevertheless, GSJB Were notes the months of May and June (ahead of the June financial year-end) typically endure the highest level of corporate profit warnings (which can be bad or good). Since 2000, 25% of all warnings have occurred in this period.<\/p>\n
\n\tThe analysts suggest 29% of the stocks in Weres' coverage universe show upside earnings risk potential, similar to the level at the February half season. This time last year upside expectations only totalled 13%. On the flipside, 15% show downside risk compared to 31% this time last year.<\/p>\n
\n\tAmong the industrials, it is the cyclicals boasting most of the upside risk and defensives the downside, says Weres. Rising commodity prices suggest upside revisions are possible for 37% of sector stocks with only 7% facing downside, in the analysts' view.<\/p>\n
\n\tThe Top 100 stocks with the greatest upside risk potential, according to Weres, are Asciano ((AIO)), ANZ Bank ((ANZ)), Aquarius Platinum ((AQP)), Aust Worldwide Exploration ((AWE)), Bendigo & Adelaide Bank ((BEN)), BHP Billiton ((BHP)), Boral ((BLD)), Boart Longyear ((BLY)), Bluescope Steel ((BSL)), CommBank ((CBA)), Challenger Financial, ((CGF)), Cochlear ((COH)), Caltex ((CTX)), Downer EDI ((DOW)), Incitec Pivot ((IPL)), Lihir Gold ((LGL)), MAp Group ((MAP)), National Bank ((NAB)), Newcrest ((NCM)), News Corp ((NWS)), OneSteel ((OST)), OZ Minerals ((OZL)), Qantas ((QAN)), Rio Tinto ((RIO)), Seek ((SEK)), Sims Group ((SGM)), Transurban ((TCL)), WA Newpapers ((WAN)), Westpac ((WBC)) and Westfield ((WDC)).<\/p>\n
\n\tNotable in that group are the big miners and all the big banks.<\/p>\n
\n\tThe Top 100 stocks with the greatest downside risk potential are Aristocrat ((ALL)), Billabong ((BBG)), CSL ((CSL)), Foster's ((FGL)), Fortescue Metals ((FMG)), Macquarie Group ((MQG)), Primary Healthcare ((PRY)), Sonic Healthcare ((SHL)) and Telstra ((TLS)).<\/p>\n
\n\tAnother factor to consider is the rising Australian dollar, which Macquarie notes is continuing its trajectory with increasing interest rate expectations. Macquaire's quant analysts note the materials, industrials and energy sectors have the strongest positive correlation to rising rates and currency, while healthcare, utilities and consumer staples (the defensives) have the strongest negative correlation.<\/p>\n
\n\tStocks Macquarie believes will benefit most from a higher Aussie and rates are Asciano, Fortescue, Boart, OZ Minerals and Challenger Financial.<\/p>\n
\n\tStocks which the analysts believe will suffer the most are Goodman Fielder ((GFF)), Cochlear, Bendigo & Adelaide, CSL and Foster's.<\/p>\n
\n\tIn the meantime, BA-Merrill Lynch has performed a promotion and relegation round on its “Australia Focus One” list of preferred stocks (which is similar in intent to Weres' “Conviction List”).<\/p>\n
\n\tOut goes Virgin Blue Airlines ((VBA)). While Merrills sees upside for Virgin over the next twelve months the analysts suggest rising fuel costs, excess capacity and competition will weigh on the airline as we move into the Australia-US travel off-season.<\/p>\n
\n\tIn comes Bluescope Steel. Merrills notes Bluescope has been running at capacity for the last several months and costs are improving, providing upside potential on currently rising steel prices. Bluescope looks expensive on an FY10 price\/earnings of 41x but the figure implies the company is cycling out of trough earnings and the PE will reduce as actual earnings reports catch up to market expectation.<\/p>\n","protected":false},"excerpt":{"rendered":"
RBS looks at the US reporting season now underway while GSJB Were assesses earnings risk to local companies, plus more.<\/p>\n","protected":false},"author":8,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[26],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56490"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/8"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=56490"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56490\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=56490"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=56490"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=56490"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}