Earnings season: Bad news accommodated, good news celebrated

The reality of this season is that earnings expectations are so benign it will be very hard to disappoint. Picture: iStock

The corporate earnings season is officially under way with strong signs that good news will be rewarded big time, while bad news is going to be seen as a buying opportunity.

As the first significant session unfolded on Tuesday, it became clear investors are now listening to what they want to hear on the local market.

Big stocks with disappointing data got away lightly, while any company showing the merest suggestion of improved performance was bid up.

Cochlear - one of the big three healthcare stocks along with CSL and ResMed - said things were looking worse thanks to coronavirus.

Cochlear CEO Dig Howitt spelled out the issues in China which meant the group had to revise its still-to-be-released profits downwards by up to $30m.

Outcome? A sell-off that lasted less than a few hours and then bargain hunting. Cochlear was down 4 per cent mid-morning but by the afternoon, bargain hunters were back nibbling at the stock which finished the day 3.4 per cent lower at $236.47.

Building group Boral, which has been engulfed in an accounting scandal that has led to the resignation of CEO Mike Kane lost 10 per cent on Monday.

Despite losing steam while its key US market picks up, by Tuesday much was forgiven at Boral with the building materials company rebounding 3 per cent to $4.74

Meanwhile, insurer Suncorp announced a 6 per cent drop in after tax profit but finished the day just 1.3 per cent off at $12.35.

And so it went across the wider market: bad news accommodated, good news celebrated.

Challenger which has somehow managed to lose pace as a virtual monopoly provider of annuities in a market that is desperate for stable income, announced it would tie up with industry funds.

It also said “improved investment experience” meant profits would come in at the top of its guidance range. The stock finished more than 13 per cent higher at $10.10.

Nothing it seems can stop the double momentum of Wall Street’s rising prices and our own lofty dividend yields compared to the US market, which make the sharemarket the only place to make money just now.

By the end of a session peppered with uninspiring statements from sector leaders such as Macquarie or Beach Energy, the market finished on a two-week high with the S&P/ASX 200 up 0.61 per cent, to 7055.3.

The reality of this season is that earnings expectations are so benign it will be very hard to disappoint - earnings per share expectations for the wider market are running at between 3 and 5 per cent.

We don’t know yet how the market will fare over the six weeks or so that earnings roll out from our major companies but the first days can set the trend - if the trend is buying good results for promise and poor results for opportunity then records will be broken.

The theory will be tested to the maximum when we get results from CSL and Commonwealth Bank on Wednesday.

Blood products multinational CSL is now trading on a price earnings ratio that is more than double the wider market.

Despite intense expectations the stock continued to climb on Tuesday - to $325.73 - double what it was trading at two years ago.

Can results from growth champion CSL live up to expectations? There is a recurring pattern of the stock being sold off in the days after its results and then the bargain hunters move in ... this time round it might be hours not days.

At the other end of the spectrum, dividend champion Commonwealth Bank has to deliver handsomely, too. The bank is expected to be even more closely watched.

Brokers expect the bank to deliver a weaker half-on-half result of close to $4.3bn.

If this level of buyer sentiment keeps up, it looks like anything close to that number will do fine.