Macro Intelligence: what to expect from CBA and CSL this Australian reporting season

Article written by Juliette Saly (ausbiz)

Reporting season kicks off

In this week’s edition of IG Macro Intelligence, we take a look at the outlook for the upcoming reporting season and preview what to expect from market heavyweights CBA and CSL. Analysts will be looking for whether companies have been able to deliver healthy returns amidst the high-interest rate environment and current macroeconomic conditions.

ASR Wealth Advisors expects guidance from CEOs to “lean towards conservatism” as companies grapple with the knock-on effects of higher inflationary pressures.

Morgans expects FY24 EPS to decline by 5% before rebounding by 5% in FY25 and sees potential upside surprises in the February reporting season.

When is CBA reporting?

CBA is expected to report their H1 earnings on 14 February, 2024.

CBA's rising costs

The largest of the “big four” banks is expected to post a decline in net income, as funding costs and deposit rates rise, weighing on the bank’s net interest margins. CBA is tipped to report a 10.6% drop in 1H net income to AUD 4.8 billion, down from AUD 5.4 billion in the prior corresponding period, according to Reuters data.

It is expected to pay a fully franked interim dividend of AUD 2.175 per share, up from last year’s 1H payment of AUD 2.100.

CBA's performance and market outlook

Over the last three years, CBA has averaged earnings growth of 7.99% on an annual basis, far outpacing the industry average growth of 1.74%. For fiscal years 2024 and 2025, analysts are estimating that average annualised growth will be weaker than during the last three years, according to CommSec Research.

CBA shares have been testing new highs and are currently trading in a strong bullish pattern, according to multiple indicators. The 5-day moving average of the stock is above the 50-day moving average, while both the 20-day and 200-day moving averages are trending higher.

CBA revenue expectations

CBA announcements and forecast earnings

CBA one year chart

When is CSL reporting?

CSL is due to report first-half earnings on 13 February, 2024.

It’s tipped to post a 9.4% rise in 1H revenue to AUD 7.88 billion and a 22.3% increase in net income to AUD 1.99 billion, according to Reuters estimates.

CSL's dividend outlook

CSL is tipped to increase its 1H dividend payment by almost 11% to AUD 1.19, up from AUD 1.07 paid in 1H 23.

In October, CSL reaffirmed its full-year guidance, targeting 9-11% revenue growth at constant currency and full-year NPATA growth in the range of approximately AUD 2.9 billion to AUD 3 billion at constant currency.

CSL earnings have underperformed the industry average of the last three years, declining by an average of -1.75% annually, worse than the average industry growth of 3.93%.

Growth projections: CSL's road ahead

For fiscal years 2024 and 2025, analysts are estimating that average annualised growth will increase to 24.96%.

Data compiled by CommSec and ASX TradeMatch show CSL shares are trading in a medium-term rally. The 5-day moving average is above the 50-day moving average, and the 20-day moving average is rising.

CSL announcements and forecast earnings

CSL announcements and forecast earnings

CSL daily chart

Analyst sentiments: CBA and CSL in focus

Analysts hold predominantly bearish views on CBA, despite its recent highs, contrasting with a bullish outlook on CSL, which experienced a downturn late last year.

CBA's outlook

Analysts collectively lean towards a SELL recommendation for CBA, as indicated by Reuters data. The average target price is set at AUD 90.88, suggesting a potential decline of nearly 21% from its recent peak.

Broker opinions vary, with three maintaining a HOLD position, nine advocating for a SELL, and two issuing a strong SELL. Citi emerges as the most pessimistic, setting its target at AUD 84 with a SELL rating.

CBA's valuation currently stands at 20 times FY24's estimated earnings, as per analysis by the Motley Fool, marking a higher valuation compared to its counterparts. Westpac, ANZ, and NAB are valued at 13, 12.6, and 14.5 times FY24's earnings, respectively.

CBA analyst ratings and future projections

The Ozempic effect: CSL's market dynamics

CSL's share price was notably affected by the "Ozempic Effect," plunging to a four-year low of AUD 228 last year.

Citi remains optimistic, endorsing CSL with a BUY rating and a target price of AUD 325, referencing its peak of AUD 340 in 2020 with expectations of reaching similar heights, supported by UBS's outlook.

According to Reuters, CSL's consensus target price stands at AUD 311.94, with analyst opinions consisting of four strong buys, nine buys, two holds, and one sell.

This summary reflects the current financial landscape for CBA and CSL, highlighting the contrasting perspectives of analysts amidst evolving market conditions.

CSL August 2023 - February 2024 chart

CSL analyst ratings and future projections

Sector performance: financials vs. healthcare

The healthcare sector has underperformed the financial sector over the past twelve months, declining by 1.35% compared to a 3.2% gain in financials.

However, in the last six months, the healthcare sector has experienced a significant turnaround, increasing by 10.4%, which exceeds the 9% return in financial stocks as per data compiled by the ASX.

ASX sector one-year time frame