ASX reporting season: results fail to exceed lofty expectations

The ASX 200 recorded a second weekly decline last week, as company results underwhelmed investors. In this week’s Invest Spotlight, we take to review the week that was, and look ahead to the results of Rio Tinto, Woolworths and Qantas.

Results fail to exceed lofty expectations

While there were winners and losers, the results delivered by ASX-listed companies last week proved a drag on the local stock market. The most noteworthy was the Commonwealth Bank of Australia's results (which we previewed last week) that sent its share price and that of the other banks plummeting.

Although the bank posted half-year profits of $5.3 billion - a beat on expectations and the first time it has posted profits above $5 billion - signs of a peak in margins and profitability, not to mention a very rich valuation, saw CBA’s share price tumble. The thematics impacted the outlook for the share prices of the other major banks, which sold off in sympathy with CBA.

Owing to the high weighting of financials within the ASX 200, it led to a 1.17% fall in the index for the trading week. The financial sector itself shed 4.33% and CBA lost over 8% of its value.

Across the entire market, data compiled by FN Arena and presented in its ASX corporate results monitor suggests a tepid reporting season.

Out of 94 stocks that have been reported, 27 have beaten expectations, the same number has missed expectations, while 40 have come in line with forecasts.

Three ASX stocks to watch this week

It will be another big week for ASX earnings this week, with almost a quarter of the total market cap reporting, according to Maqro Capital.

• BHP

The ASX’s biggest company and the world’s biggest miner, BHP Group Ltd, reported on Tuesday morning. It posted weaker-than-expected revenues and profits and cut its dividend to 90 cents per share.

Naturally, the weaker performance came due to falling commodity prices last year, especially iron ore, as global economic conditions weakened. Despite that, BHP’s share price rose to record highs in the last half, mostly as investors positioned for the positive growth impacts of China’s re-opening. While the miner said it expects steel demand to improve. It warned of weaker iron ore demand from China “in the medium term”.

Currently, the broker community has a “hold” rating on BHP shares, with eleven recommending that action, seven suggesting a buy, and three a sell. The consensus price target is $US118.89.

Although sitting close to record highs, the charts point to risks being skewed to the downside for BHP’s share price. The stock price is meeting resistance at $50 per share, as a short-term level of support just below $48 comes into view. Longer-term support for BHP looks to be around $44 and $40, with $35 representing deep value.

BHP weekly chart

• Woolworths

Woolworths delivers its half-year results on Wednesday the 22nd of February. Investors are expecting a modest uplift in sales and profits for the half, with the company’s bottom line forecast to grow 4% to $A831 million, which out to underpin an interim dividend of 44 cents per share.

The key issue for investors in Woolworth’s interim results will be cost management and customer demand. Inflation has simultaneously raised costs and weighed on consumer activity, subsequently putting pressure on the company’s margins. The risks of higher costs going forward have subsided recently and appear likely to improve going forward.

However, last year’s rate rises and slower economic growth is a risk to sales, even for Woolworths which primarily sells staples products.

Woolworths’ shares currently boast a consensus “buy” rating, despite the consensus price target being roughly in line with current prices. Nice recommend a buy, while four recommend a hold, and three a sell.

The technicals point to a stock in a primary downtrend. However, momentum is shifting to the upside, according to the weekly RSI. Price is currently sitting above support/resistance at $30 per share. Trend channel resistance appears to be around $37.50 which overlaps with the 100- and 200-week moving average. A break of that level could open a run towards $39.50, while $32 appears to be a level defended by buyers.

Woolworths weekly chart

• Qantas

Qantas hands down its half-year results on Thursday the 23rd of February, with the airline almost certain to return to profitability. After running at a loss for almost three years due to the pandemic, a near-tripling in revenue is expected to drive a more than $A1 billion profit for the period.

The key question for investors is: how long can the good times last?

Cashed-up customers wishing to travel following widespread lockdowns fuelled huge demand in 2022. But with growth slowing and the travel bug sated, investors will keenly await guidance from Qantas about what it expects as consumer behaviour normalizes.

Analysts remain very bullish on Qantas shares. At present, it is trading at a significant discount to the consensus price target of $7.75, with 13 brokers recommending a “buy”. The remaining three surveyed recommend a hold.

Following a series of guidance upgrades last year, Qantas shares are clearly in an uptrend. However, there are signs the stock is overbought and losing upside momentum, with the weekly RSI diverging from price. A strong result from Qantas could push the price above short-term resistance at $6.60 and toward $7.00. Short-term support is around $5.90

Qantas weekly chart