Goldman Sachs Highlights 11 ASX 200 Stocks to Keep an Eye on During This ‘Confession’ Season

The unofficial "confession season" for the market has commenced, with many ASX-listed companies yet to provide updates regarding their March quarter performance. Analysts are preparing for potential earnings downgrades as firms adjust their annual forecasts.

Goldman Sachs has indicated that, to meet FY25 consensus earnings, companies would need to achieve their best second-half results in two decades. Early trading updates have resulted in an average downgrade of approximately 1%, although share prices have generally improved on these announcements, suggesting that investors had anticipated worse outcomes.

Currently, the broader market has already factored in a degree of optimism. The ASX 200 index is trading 2% above its pre-"Liberation Day" levels. With valuations high and the equity risk premium at its lowest in almost 20 years, the threshold for positive surprises is increasingly elevated.

The Macro Environment: A Mixed Bag

Despite global uncertainties such as tariff changes, tensions between China and the US, and political distractions, Goldman Sachs reports that domestic activity in Australia remains stable, albeit below the expected trend. Retail sales are gradually improving from the lows experienced last year, but consumer sentiment has weakened following recent tariff announcements.

On a positive note, pressure on corporate margins appears to be reducing. Labour costs are stabilising, borrowing costs have decreased, and the Australian dollar is 3-5% weaker this half-year, which is advantageous for exporters.

Although US earnings remain strong, Chinese exporters are facing significant challenges, with about 40% reporting a 50% decline in volumes destined for the US. This situation may result in cheaper goods being redirected to Australia, providing a profit advantage for local importers.

Companies Likely to Exceed Expectations

According to Goldman Sachs analysts, the following companies are in prime positions to potentially deliver surprising results:

• Xero (ASX: XRO): Increased app downloads (+295,000 this year) indicate surpassing subscriber growth expectations. The accounting software provider is also capitalising on price increases from competitors and maintaining stable margins, with focus now shifting to its FY26 growth forecast.

• Bluescope Steel (ASX: BSL): Revised forecasts for US steel prices alongside declining raw material costs (notably iron ore and coal) signal positive potential for earnings in the second half of FY25. The performance of US operations is crucial.

• Codan (ASX: CDA): The communications and metal detection company is outperforming expectations. Recent acquisitions coupled with a favourable foreign exchange environment and robust gold prices, especially in African markets, could enhance second-half results.

• QBE Insurance (ASX: QBE): With steady commercial premium rates and manageable catastrophe losses, QBE is on track to meet or surpass its FY25 combined operating ratio targets. Strong balance sheet metrics also open the possibility for capital returns.

Below is a summary of the ratings and target prices for these potential outperformers:

Companies Facing Potential Downside

Conversely, several companies are at risk of disappointing their expectations:

• Spark New Zealand (ASX: SPK): Mobile revenue is projected to fall short of forecasts, despite an anticipated recovery in the second half. Market competition and economic challenges are significant factors.

• Orora (ASX: ORA): Tariff discrepancies create uncertainty regarding Saverglass’s order book. Although earlier improvements were noted, actual sales conversion remains in doubt.

• Computershare (ASX: CPU): The broader economic climate could impact cyclical transaction revenues and margin balances in FY26, though guidance for FY25 seems stable. Current valuations may limit upside potential.

• Endeavour Group (ASX: EDV): Sales for Dan Murphy’s and BWS are continuing to decline, while hotel growth is also slowing down. The repercussions of previous industrial actions are still affecting performance.

• Fletcher Building (ASX: FBU): Construction activity in New Zealand remains under pressure, and recent rate cuts have yet to translate into increased activity amidst tough competition.

• IDP Education (ASX: IEL): Volumes of international students are being downgraded further. While IDP maintains market share, the expectations for outperforming are increasing.

• Healius (ASX: HLS): Anticipated tightening of pathology funding coupled with slim EBIT margins raises doubts about management’s ambitious FY27 targets. Operational changes may require significant time to yield results.

A summary of analysts’ ratings and 12-month target prices for these at-risk companies is as follows:

Conclusion

As confession season intensifies in May, increased market volatility is anticipated. Goldman Sachs advises caution regarding companies trading at inflated valuations without immediate earnings backing. Nevertheless, opportunities for upside remain, particularly within firms demonstrating robust pricing power, favourable foreign exchange conditions, or ties to stable global markets.