Investor Spotlight: ASX earnings profits underwhelm amid cloudy outlook

The ASX 200 reporting season is all but over, with the results largely disappointing investors. In this week’s Investor Spotlight, we wrap up the reporting period and look at the results and charts of the Commonwealth Bank of Australia, BHP, Fortescue Metals Group, and CSL.

Proftits disappoint as outlook gets gloomier

On balance, it proved to be an underwhelming reporting period for ASX-listed companies. When looking at ASX20, an index of the market’s biggest companies, 11 reported posted a weighted average earnings growth of -3.48%*.

As the table below demonstrates, the big miners were amongst the biggest drags, while QBE and Wisetech posted noteworthy increases in earnings growth.

Along with increased interest rates rise in Australia and the United States, weaker-than-expected company profits and cloudy guidance from management teams contributed to a roughly 2% drop in the ASX 200 over the past month.

The index is carving out an ascending wedge on the charts as price momentum moves lower. A confluence of key technicals sits around 7200 now, which if broken, may open a drop towards 6900. Short-term technical resistance looks to be around 7500.

Four stocks to watch

• BHP (BHP)

Given the falling iron ore price at the end of 2022, investors were prepared for a considerable drop in BHP's earnings. However, the decline in miners’ top and bottom lines proved larger than expected, with profits missing analyst estimates by almost 6%, and contracted by 32% from a year earlier.

Despite this, BHP paid a slightly higher dividend than expected of $0.90, although this was 40% lower than a year earlier.

Warnings of weaker iron ore demand out of China in the “medium-term” rattled investors and contributed to a lower price for BHP stock following the results.

Resistance at $50 has been rejected, with price-breaking support at $47.65. With momentum turning lower, the next levels to watch on the downside are $45.00 and $43.00. Deep value looks to be around a strong support level of around $35.00.

BHP weekly chart

• Commonwealth Bank of Australia (CBA)

The financials reported by the Commonwealth Bank of Australia were stronger than analyst expectations. Revenues were in line with forecasts but profits were 3% above consensus estimates, with the bank reporting an interim profit above $AU5 billion for the first time.

The result underpinned an interim dividend of $2.10, which was consistent with expectations and the payout delivered in the prior half.

Owing to a very rich valuation and a narrative surrounding a peak in net interest margins, CBA shares tumbled on the day of the company’s results, with the stock shedding close to 10% since. The stock appears to be reversing a short-term uptrend, with support being found at around $100 per share. A break of that level may bring the low 90s into view, with analysts’ consensus price target at $95.

Commonwealth Bank of Australia weekly chart

• CSL (CSL)

CSL reported stronger than expected revenues but softer profits for the half, as the company continues to deal with disruptions to its business and a higher cost environment, along with one-off costs associated with Vifor Pharma. Plasma collections continued to rebound in the half, returning to record levels. CSL paid a smaller dividend than the prior half of only $1.07.

Investors were left disappointed with the result and combined with higher yields amidst fears of more aggressive rate rises in Australia and the United States, CSL’s shares have fallen in the past fortnight. The stock remains in a medium-term uptrend.

However, momentum in the short term is skewed lower. Key levels of support are now around $300, $285, and $260. A formidable level of resistance is around $3.15.

CSL weekly chart

• Fortescue Metals Group (FMG)

Like its other iron ore miner counterparts, Fortescue Metals Group posted a significant drop in revenues and profits for this half and reduced the size of its dividend. Unlike BHP and Rio Tinto Limited, FMG’s numbers were in line with expectations, with the company’s share price better supported following the release of its results.

FMG’s shares are struggling to regain upside momentum as stocks generally struggle and investors price in the cyclical peak for mining profits. The charts reveal traders are tending to sell the stock above resistance at $23, with the price breaking the lower bound of its short-term trend channel. A break of that level may open a test of support at $21.50, and below that, $20.

FMG weekly chart

*A weighted average of the profit growth of 11 ASX200 stocks. The number excludes WDS which reported 27/202/2023, and TCL, which reported EPS of 0.013, up from -$0.0035.