The potential surprises of Australia's February reporting season

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The February half year reporting season is expected to unveil better than usual earnings growth of ASX-listed companies.

Deutsche Bank says 2018 is on track to deliver another positive year of earnings growth, around 8%.

“We expect this to be the most upbeat reporting season in some time,” Deutsche Bank Strategists Tim Baker and David Jennings wrote in a note to clients.

“Analysts always expect good growth, but pleasingly FY18F earnings have proved resilient in the past six months, which inspires confidence. The earnings revision ratio at its highest level in over a decade.”

UBS says Australian market earnings growth for 2018 is more like 7%, what it calls “a respectable, slightly above-trend pace”.

“However, this looks somewhat pedestrian compared to the rest of the World, with 14% EPS growth achieved in CY17 and 10% expected for CY18. This is before the full benefit of US tax cuts is factored in.”

Citi analysts say pre-announcements of earnings have been relatively few this year which could bode well for the coming results.

“There have also been earnings upgrades across more stocks, exceeding stocks seeing downgrades in recent months, in the resource sector of course, but elsewhere too,” they write.

“The results should be reasonable given the increasingly supportive business environment. Stronger global growth has lifted conditions for companies operating internationally, the domestic economy also seems to have improved, and generally low selling price inflation is still running ahead of labour cost growth. Only lately has the higher AUD become a potential headwind.”

The stocks to watch:

Potential upside earnings surprise

Deutsche Bank: Amcor, Ausdrill, JB Hi-Fi, James Hardie, Link, Monadelphous, Nine, Star, WorleyParsons and Woolworths.

UBS: Ansell, Computershare, Harvey Norman, Janus Henderson Group, JB Hi-Fi, Qantas Airways, SEEK, Star Entertainment Group, Woolworths, Altium, Bingo Industries, Cleanaway Waste Management, The Reject Shop & Webjet.

Citi: Origin Energygy, AGL, CSL, Cochlear, Goodman Group, Dexus, Boral, IAG, AMP.

Potential downside

Deutsche Bank: Crown, GBST, IAG and Seven West.

UBS: Lend Lease Group, Primary Healthcare & Ramsay Healthcare, APN Outdoor Group, Ardent Leisure Group, Cabcharge Australia & Retail Food Group

Citi: Primary Health Care, Healthscope, Sonic Healthcare, SEEK, Event Hospitality, Village Roadshow, Commonwealth Bank, Bendigo Bank.

The full list of Deutsche Bank analyst candidates for earnings surprises:

And the UBS large-cap upsides:

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