\n\tBy Greg Peel<\/p>\n
\n\tThis is the second offering in FNArena's round of FY10 reporting season previews, following on from Previewing FY10 Results And FY11 Outlook<\/a>. Less experienced investors are also encouraged to note our Guide To The Australian Reporting Season<\/a>.<\/p>\n \n\tJP Morgan has used fundamental analysis and quantitative screening to arrive at a list of stocks the quant analysts feel have the potential to surprise this earnings season. A poll of stock analysts suggests as much as 69% of stocks could surprise, split to 26% upside risk and 43% downside risk.<\/p>\n \n\tThe boffins then compare these results to IBES consensus forecasts, and then take into account the recent relative performance of sectors, buyback activity and the breadth of stock analyst forecasts. Next they compare earnings expectations implied by stock prices, as they are now, to arrive at a “consensus valuation” benchmark. The result is four lists: stocks with upside risk towards consensus (which one presumes means the market is right), plain upside risk, downside risk, and “uncertain” risk, which one assumes means analyst forecasts are so all over the shop anything could happen.<\/p>\n \n\tThose stocks with upside risk to consensus are ING Office ((IOF)), Cochlear ((COH)), Challenger Group ((CGF)), Perpetual ((PPT)) and Foster's ((FGL)).<\/p>\n \n\tThose with upside risk are BlueScope ((BSL)), Qantas ((QAN)), Commonwealth Property Office ((CPA)) and Stockland ((SGP)).<\/p>\n \n\tThose with downside risk are Billabong ((BBG)), Sims Group ((SGM)), Primary Health Care ((PRY)), Transfield ((TSE)), Nufarm ((NUF)), and Australian Worldwide ((AWE)).<\/p>\n \n\tThose with uncertain risk are Insurance Australia Group ((IAG)), CSL ((CSL)), Myer ((MYR)), Fairfax ((FXJ)), Telstra ((TLS)), Suncorp-Metway ((SUN)), and Arrow Energy ((AEO)).<\/p>\n \n\tNote that these risk profiles have been assessed by quantitative analysts, not fundamental analysts. Quants are the guys who come up with elaborate computer models each year to win the office tipping comp in an effort to prove no actual knowledge of footy is required.<\/p>\n \n\tRBS does not need a pencil holder in its top pocket, nevertheless, to note that there is $37bn in franking credits sitting in ASX 100 stock accounts in FY10. The top 100 is currently generating franking credits 33% faster than they are distributing them, the analysts calculate.<\/p>\n \n\tThis provides an opportunity for retail and superannuation investors to save an awful lot of tax, RBS suggests, but only if they can “get hold of” those credits. It all comes down to a company's distribution policy. The new cashflow-based dividend policy rules should lead to more dividends and\/or capital management, the analysts believe, but otherwise the best they can suggest is that investors literally try picking up the phone to browbeat those companies with the biggest lolly hoard into handing it over.<\/p>\n \n\tFor the record, the top ten holders of franking credits (from among the ASX 100) in FY09 were Rio Tinto ((RIO)), BHP Billiton, Woodside ((WPL)), Westpac ((WBC)), Woolworths ((WOW)), National Bank ((NAB)), Santos ((STO)), Commonwealth Bank ((CBA)), Caltex ((CTX)) and Suncorp.<\/p>\n \n\tThe healthcare sector is a hot topic of late, given this supposedly defensive sector has been arguably the most volatile in the market in the first half of 2010. I have noted before that a sector can hardly be considered “defensive” if its fortunes are totally in the hands of election-year regulators.<\/p>\n \n\tBA-Merrill Lynch poses the question heading into FY10 results: Should investors buy into weakness or just avoid the “sovereign risk” from regulators for another six months until the dust settles?<\/p>\n \n\tThe question clearly is aimed at the pathology market where the bulk of the damage has been done. Merrills believes Primary ((PRY)) has a more certain FY11 outlook than Sonic Healthcare ((SHL)) given Primary is balanced by GP acquisitions.<\/p>\n \n\tOutside of pathology, Merrills notes ResMed ((RMD)) has guided to ambitious earnings in the June quarter wish should be met but not exceeded, whereas stiff opposition will come from Ansell ((ANN)) which Merrills believes will not only beat FY10 guidance but force broker re-ratings with a positive FY11 outlook.<\/p>\n \n\tInternational players CSL and Cochlear have been negatively impacted by global macro issues, the broker notes, but should be able to show market weakness offset by market share gains. But their respective industries will need to return to growth before market sentiment recovers.<\/p>\n \n\tReturning to the original question, Merrills offers that healthcare stocks are not defensive at all, they are “late cycle”. In order to deal with an aging population, regulators will cut back on spending (medical rebates) now in order to save for the future. Hospitals are more defensive than medical services, says Merrills, but not immune to regulatory changes. The analysts thus believe Ramsay Health Care ((RHC)) is overpriced and recommend Underperform.<\/p>\n \n\tYesterday Morgan Stanley argued the opposite and recommends Overweight.<\/p>\n \n\tDeutsche Bank takes the middle ground, believing Ramsay should “surprise” on the upside but is already fully valued by the market. Can't be much of a “surprise” then. Deutsche thus has Ramsay on Hold.<\/p>\n \n\tWhere was Ramsay in JP Morgan's “uncertain risk” list?<\/p>\n \n\tOutside of Ramsay, Deutsche falls into line by liking ResMed and Ansell and staying wary of Primary and Sonic. The analysts have otherwise slashed their earnings forecasts recently for iSoft ((ISF)), following a profit downgrade, and Vision Group ((VGH)), following the departure of a number of key ophthalmologists.<\/p>\n","protected":false},"excerpt":{"rendered":" Brokers discuss healthcare while JP Morgan looks for surprises and RBS points out where $37bn in franking credits could be accessed.<\/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":[39],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56922"}],"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=56922"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/56922\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=56922"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=56922"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=56922"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}