Goldman and Macquarie's predictions for the August reporting season

Analysts from two major brokers, Macquarie and Goldman Sachs, have released their predictions for earnings for the August full-year reporting season, and neither of them are looking particularly positive. 

Goldman Sachs Australia analysts argue that while tax cuts and potentially more fiscal spending would be positive for an eventual uplift in growth, weak consumer sentiment and business conditions, as well as a softening labour market, don't paint a pretty picture for earnings momentum in the near term. 

To make matters worse, higher-than-expected inflation has Goldman's economists predicting a much later start to the easing cycle (25bp cut in February 2025, with a 25% chance the RBA could hike instead). 

Analysts believe that EPS growth will fall by 3.8% in FY24, before lifting by 3.4% in FY25.

Meanwhile, Macquarie's predictions are far more dramatic, with analysts arguing that ASX earnings will fall 6% in FY24, and then rebound 10% in FY25 driven by a 23% uplift for resources. However, analysts argue that with the Fed expected to ease in September, investors "have been looking past the FY24 earnings decline to the expected rebound for some time." 

"With equity sentiment already bullish and the cycle shifting to a slowdown, we see delivery on EPS growth expectations as key to supporting share prices," analysts wrote. 

Since mid-May, EPS revisions have been increasingly negative, with net downgrades of 14% in July. Macquarie's analysts believe this will continue in August, noting the month is typically the worst for revisions. 

"The last time August revisions were positive was 2003-06. With uncertainties over the cycle, margins, rates and the US election, we expect conservative initial guidance (which often leads to downgrades)," analysts wrote. 

They also note that there has been a negative skew in market reactions for results in the US, with the underperformance of companies that missed expectations being two times that of the outperformance of those that beat. 

Macquarie analysts believe there are three screens for earnings risk in August, particularly given the increasing likelihood of net downgrades and negative market reactions during the month. These include: 

1. Companies with above-average 2H24 earnings (as these often disappoint): 

• Ramsay Health Care (ASX: RHC)
• Reliance Worldwide (ASX: RWC)
• Domain Holdings (ASX: DHG)
• Medibank Private (ASX: MPL)

2. Companies with optimistic margin forecasts, given the slowing economic cycle and ongoing cost pressures:

• Seek (ASX: SEK)
• Iress (ASX: IRE)
• Healius (ASX: HLS)
• Dominos (ASX: DMP)
• Downer (ASX: DOW)

3. Stocks with more than 20% net EPS downgrades (which typically have more misses):

• Sonic Healthcare (ASX: SHL)
• Seek (ASX: SEK)
• Ramsay Health Care (ASX: RHC)
• IDP Education (ASX: IEL)
• Dominos (ASX: DMP)
• Downer (ASX: DOW)
• NIB Holdings (ASX: NHF)

That said, the stocks below have more than 20% net EPS upgrades that tend to have more positive surprises: 

• Aristocrat Leisure (ASX: ALL)
• Steadfast Group (ASX: SDF)
• Pro Medicus (ASX: PME)
• ALS (ASX: ALQ)
• REA Group (ASX: REA)

With this in mind, the analysts over at Macquarie have a few counter-consensus ideas based on their forecasts for 2025. These include: 

Positive outlooks for Computershare (ASX: CPU), Origin Energy (ASX: ORG) and Pro Medicus (ASX: PME) - which are all rated as "outperform" by the broker. It has negative outlooks for Star Entertainment (ASX: SGR), Healius (ASX: HLS), AMP (ASX: AMP), Seek (ASX: SEK), Sonic Healthcare (ASX: SHL), Dominos (ASX: DMP) and Eagers Automotive (ASX: APE).

Meanwhile, Goldman Sachs analysts note that margin increase expectations are broad-based across every ASX sector, with the consensus assuming that profitability will improve heading into FY25.

The Gaming, Transport, Health Care, Services, Media and Technology sectors are forecast to deliver over 50bps of margin expansion, analysts wrote, while the Housing and Consumer-related sectors are likely to face continued profitability pressure in a world of higher for longer rates. 

Macquarie believes earnings will rebound in FY25, supported by a rebound from the Resources sector. 

Industrials have the most positive EPS growth expectations for FY25 at 8.7%. Analysts expect stronger growth from internationally exposed companies (10.6%) compared to domestic (6.9%) for the year ahead, and are optimistic that this growth can continue out into FY26. 

Resources are expected to see EPS growth expectations fall by 21% in FY24 thanks to lower commodity prices and higher costs. However, looking out into FY25, earnings for the sector are forecast to rebound nearly 23%. 

Bank earnings, on the other hand, are forecast to fall 2.4% in FY24, and then by a further 5% in FY25, driven by expectations around interest rate cuts during the year. 

Meanwhile, Real Estate earnings, which have been under pressure, are expected to grow 7.6% in FY25. However, with sentiment already bullish and the cycle slowing, delivery on these earning expectations is key to support share prices, analysts said. 

Goldman Sachs, on the other hand, believes that it's "very unlikely" that earnings will improve as the consensus would have you think in FY25. 

"ASX 200 Industrial EPS growth is expected to rise from 5% in FY24 to 9.6% in FY25. Nearly all of this improved earnings outlook is driven by an expectation of a material lift in margins, with NPAT margins forecast to rise 40bps from 6.3% to 6.7%," analysts wrote.