Macquarie Group Ltd (ASX:MQG) picks the biggest FY19 upgrades and downgrades

The reporting season focus is not so much on the FY18 full year results but the outlook for the current financial year. On that front, things may not be as rosy as what you might think.

a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index is running higher today and could soon retest its decade and a half high from last week thanks to the reasonably upbeat profit reporting season.

The focus is not so much on the FY18 full year results but the outlook for the current financial year. On that front, things may not be as rosy as what you might think.

Macquarie Group Ltd (ASX: MQG) consensus estimates on FY19 earnings growth have been cut by 145 basis points to 12.1% since the start of the reporting season with downgrades evident across banks, industrials, resources and property.

"Similarly, on a stock level, 58% of companies that have reported have had their FY19 earnings forecasts downgraded," said the broker.

"Majority of these downgrades have come from ASX 100 stocks, with the average downgrade of -3.8% vs the average upgrade of +2.3% excluding Resources."

Rising costs, a slowing property market, greater regulatory scrutiny and higher than expected capital expenditure are some of the factors contributing to the earnings downgrade, although the weaker Australian dollar and the expected drop in electricity prices due to government intervention should offset some of this pressure for some in the S&P/ASX 100 (Index:^ATIO) (ASX: XTO).

The stocks that have enjoyed the biggest FY19 earnings per share (EPS) upgrades include utility ERM Power Ltd (ASX: EPW) with a 298% uplift, baby products retailer Baby Bunting Group Ltd (ASX: BBN) with a 22.5% upgrade and fund manager Magellan Financial Group Ltd (ASX: MFG) with a 7.8% increase.

Having a big profit upgrade doesn't necessarily make the stock a buy but stocks in this group tend to outperform the market over the next six months, if not longer.

The one that I think stands out is Baby Bunting. The stock may have surged on the back of its results and is no longer cheap, but I think it's well placed to enjoy further consensus upgrades over the course of FY19.

Among those that suffered the biggest cuts to their FY19 EPS include online jobs site SEEK Limited (ASX: SEK) with a 15.5% downgrade, annuities company Challenger Ltd (ASX: CGF) with an 8.1% reduction, port and logistics operator Qube Holdings Ltd (ASX: QUB) with a 7.1% cut and our national carrier Qantas Airways Limited (ASX: QAN) with a 7% decrease.

Again, not all of those suffering a downgrade should be dumped and some have even rallied on their results, like Qube Holdings.

However, most in this group are likely to struggle to make significant gains over the next year, especially if they have enjoyed a strong share price rally leading into the reporting season.

There are other blue-chips that are set to outperform in FY19. The experts at the Motley Fool have picked three of their favourite blue-chips and you can find out what these are by clicking on the free link below.

Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited and Magellan Financial Group. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia has recommended ERM Power Limited and SEEK Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Best Shares

A fit woman in workout gear flexes her muscles with two bigger people flexing behind her, indicating growth.
Best Shares

Top ASX shares to buy with $500 in November 2024

$500 worth of ASX shares might not sound like a huge investment. But, to realise the benefits of compounding, you…

Read more »

asx share price boosted by us investment represented by hand waving US flag across winning athlete
Best Shares

Here are the best-performing ASX 200 shares since the US election result

We reveal the 10 ASX stocks that have had the highest share price gains since the US Presidential election.

Read more »

A smiling man at a shop counter takes payment from a female customer, with racks of plants in the background.
Best Shares

Here's why I think Wesfarmers shares are a great buy for any ASX investor

I argue that Wesfarmers offers investors both growth and income potential.

Read more »

a young farmer stands back and admires his work in arranging bales of hay to form a house shape with two bales balancing against each other to form a roof, perched on bales tipped on their side in an abstract house shape on a freshly harvested paddock.
Best Shares

Top ASX shares to buy in November with the market near all-time highs

Our writers are still finding value in a record-breaking Australian share market.

Read more »

Excited group of friends sitting on sofa watching sports on TV and celebrating.
Best Shares

Top ASX shares to buy in November 2024

These are the ASX stocks our Foolish writers say should be on your ticket right now!

Read more »

A businessman hugs his computer and smiles.
Best Shares

3 stocks Australians can buy and hold for the next 20 years

I'd bet that these shares will be bigger and better in 2044.

Read more »

A happy boy with his dad dabs like a hero while his father checks his phone.
Best Shares

Top ASX shares for beginner investors to buy in October 2024

Buying these ASX shares now could be a profitable way to kick off your wealth-building journey!

Read more »

A smiling farmer does the thumbs up amid a field of blooming sunflowers.
Best Shares

Top ASX shares to buy in October 2024

Say bye to Q1 and buy to these ASX shares!

Read more »