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Morgan Stanley has spotlighted five large-cap stocks that are poised to attract significant investor interest this reporting season. These stocks—CSL, Insurance Australia Group (IAG), Woolworths, Stockland, and Telstra—are seen as influential due to various factors including sector dynamics, positioning strategies, and their potential to reflect broader economic trends. Here’s a closer look at why these stocks are considered pivotal and the metrics investors should watch.
CSL: A Turnaround Story
CSL (ASX: CSL) has become a key focus within the S&P/ASX 20, having lagged behind for an extended period. Currently, it trades at only a 3% premium compared to the overall market, a stark contrast to its ten-year average of 73%, suggesting attractive valuation opportunities.
Analysts at Morgan Stanley are particularly focused on CSL’s guidance for FY26, predicting an 11.5% growth, slightly under the consensus estimate of 12.5%. Investors will be keen to understand the implications of potential tariffs, especially relating to their Swiss operations, alongside the outlook for the Seqirus vaccine division in light of shifting sentiment in the US market. The company aims to restore its Behring division’s gross margins to 57%, supported by the rollout of its Rika plasma collection platform expected by the end of FY25. Additional commentary from management regarding cost reduction strategies and possible capital returns could fuel further interest.
IAG: Industry Cycling Peaks
Insurance Australia Group (ASX: IAG) is under scrutiny as it faces questions about whether the insurance sector is nearing its peak. Having outperformed over the past two years, IAG is anticipated to report a robust insurance trading margin of 17.3%, close to the top of its guidance range of 15.5-17.5%.
However, the growth outlook for FY26 is being watched carefully, with expectations hovering around 5% gross written premium growth. A pivotal moment is the pending ACCC decision on IAG’s acquisition of RAC WA, expected soon, which could result in a 7% increase in earnings per share, bolstered by further reinsurance savings.
Woolworths: The Retail Debate
Investors are currently assessing whether it’s time to shift back to Woolworths (ASX: WOW) after a significant period of underperformance compared to rival Coles. The supermarket chain has initiated a $100 million pricing strategy that started in May, lowering prices by 10% on a selection of products.
Morgan Stanley forecasts Australian food like-for-like sales growth of 2.3% in FY25; however, challenges from industrial actions and supply chains could impact margins. The new CEO’s strategic vision, particularly for non-core assets like Big W, will be closely monitored. Furthermore, the company’s $400 million cost-reduction initiative presents a chance for reinvestment, with half of the savings likely to enhance margins.
Stockland: Housing Market Indicator
Stockland (ASX: SGP) is positioned as a critical indicator of housing market sentiment, with its affordable residential offerings expected to gain from improving conditions as the Reserve Bank of Australia pursues a measured approach to interest rates.
Expected earnings guidance sits around 35-36 cents per share, with analysts remaining cautiously optimistic at 36.6 cents. Key insights may emerge regarding residential sales momentum after the recent Lendlease acquisition. Debate centres on the company’s capability to scale production, with projections of around 2,500 annual settlements, although improvements could elevate this number to 3,500-4,000.
Telstra: Sustaining the Rally
Telstra (ASX: TLS) has appreciated by 23% since its interim results in February, owing to improved average revenue per user and renewed focus on capital management. However, current positions in the stock appear dense, with a compressed dividend yield.
The company maintains EBITDA guidance for FY25 at $8.5-8.7 billion, while FY26 forecasts suggest growth nearing $9 billion. Key discussions will revolve around the durability of ARPU gains against potential churn risks, particularly in light of recent price increases. Telstra’s "Connected Future 30" strategy aims to transition from cost optimisation to network transformation, creating possibilities for considerable dividend increases.
Market Outlook
The ASX 200 currently has a forward multiple of 19.2 times, trading significantly above its long-term average of 14.8 times. Analyst projections indicate a slight earnings decline of -1.7% for FY25, with expectations for a rebound at 4.8% in FY26.
Recent economic indicators are cautiously optimistic, showing June retail sales rising by 1.2% and building approvals increasing by 11.9%. Nonetheless, Morgan Stanley cautions against potential volatility, noting that prevailing economic conditions may not align with expectations for accelerated growth driven by policy changes.
In conclusion, these five large-cap stocks are not only set to attract attention during earnings season but could also significantly influence the broader market sentiment. Each stock carries its unique narratives and challenges, positioning them as focal points for investors navigating the current economic landscape.
