The Australian Financial Review is reporting that the analysts at Macquarie Group Ltd (ASX: MQG) have looked ahead to August's reporting season to identify companies that might receive "consensus earnings upgrades" this reporting season.
Upgrades to analysts' profit forecasts based on strong financial results should trigger share price rises, so let's look at Macquarie's picks to beat consensus and a bonus pick.
JB Hi-Fi Limited (ASX: JBH) – I have to agree with Macquarie on this one that analyst consensus for earnings per share in FY 17 and FY 18 is too low, even allowing for the Amazon effect. I expect JB Hi-Fi could post a strong result this August with the electronics retailer itself forecasting profit growth between 31.4% to 35.4%. The stock looks cheap to me on just 13.5x consensus earnings per share of $1.87.
Qantas Airways Limited (ASX: QAN) is the airline benefiting from a falling fuel bill, savage cost cutting, and its powerful loyalty scheme. Macquarie expects its earnings per share to come in at 58.8 cents, or 11% above consensus. If it's right, Qantas shares could soar higher.
Genworth Mortgage Insurance Australia (ASX: GMA) is the struggling insurer that has seen its shares fall 14% over the past five years. It also has some headwinds as banks tighten mortgage lending restrictions and the bottom falls out of property prices across residential areas occupied by mining-boom beneficiaries. The mortgage insurer reports August 2 and Macquarie is forecasting it will earn 28.7 cents per share.
Ooh!Media Group Pty Ltd (ASX: OOH) is the outdoor digital advertising business that has billboards commonly at stations, airports, transit centres, and major road networks. Macquarie is forecasting it will beat analysts' earnings consensus estimates by 5.7%, which could be positive for the share price.
Amcor Limited (ASX: AMC) is the global packaging (think cigarette packets) and plastic bottling business that has heavy exposure to a stronger U.S. dollar. Macquarie is forecasting it will earn 80.6 cents per share, which places it on 19x estimated earnings with the company reporting on August 22.
QBE Insurance Group Ltd (ASX: QBE) is the global insurer that will also benefit as U.S. cash rates rise, although the stock is down 61% over the last 10 years as the golden days for the insurance industry disappear. Macquarie is forecasting 80.7 cents in earnings per share this year, which is 8.8% ahead of consensus. If QBE beats consensus by nearly 9% its shares are likely to move higher.
Carsales.Com Ltd (ASX: CAR) is the online automobile advertising and data research business that has a small network effect as its website attracts the most car buyers and sellers. Macquarie is forecasting $1.773 in EBITDA per share, which is marginally ahead of consensus.
BlueScope Steel Limited (ASX: BSL) is the steel manufacturer that has seen its shares rally around 50% since the November election of U.S. President Donald Trump that boosted global optimism over the prospect of increased infrastructure investment.
Macquarie is forecasting it will earn 123.9 cents per share this year and 131.8 cents per share in FY 2018, which is 14.3% above consensus. If Macquarie is right, Bluescope shares are good value.
As a bonus pick I would look to Macquarie Group itself as an investment opportunity that offers an attractive mix of value, yield, and growth on current valuations. Selling for $85.66 it should offer a yield of more than 5.5% in the year ahead and trades on 13.4x trailing earnings with the bank itself forecasting the year ahead to trade roughly "in line" with last year.
The main thorn in the investment case is the appreciating Australian dollar, but if you expect it to head lower over the next 12-18 months, Macquarie is my preferred pick for the long term at today's share prices.
