Key Trends from Australia’s Reporting Season - February
- Large Caps broadly underperformed
- ASX 300 Sector Earnings Trends
- Trend Reversals in Momentum and Growth
Large Cap Disappointment
As always, the confession season provides a sanity check on earnings expectations. Over the course of February, it has been a sanguine reporting season with the S&P ASX 300 index seeing earnings expectations for the next 12 months decline by 1%. Figure 1 below provides information on the largest companies in the S&P ASX 300 index. We highlight the investor reaction to the news on the day of announcement. CBA, Macquarie and Goodman had positive investor reactions on the day of results whilst others were negative. The return on the day of results is designed to capture the market assessment of the information contained in the earnings release. In most cases, the reaction aligns with changing earnings expectations, but it can be different if other factors are at play.1 It is also designed to capture the extent to which the market was surprised by the result. For the largest companies in the S&P ASX 300, it was mostly disappointing. Average % changes in expectations in the next 12 & 24 months has been negative across BHP, CSL, NAB, Westpac, Goodman and Woodside. Only 2 of the top 10 companies have been able to generate positive returns in February. At the same time as earnings disappoint, we have elevated valuations.
Figure 1: 10 Largest Companies in S&P ASX 300 Index Earnings Surprises
| Company | Sector (GICS) | % Return on day of result | % Change EPS next 12 & 24 Months | % Return in Feb 2025 | Price to Earnings FY1 |
| CBA | Financials | 2.8 | 1.9% | -1.3 | 26 |
| BHP | Materials | 0.1 | -6.7% | 2.2 | 12 |
| CSL | Health Care | -5.2 | -4.8% | -7.2 | 26 |
| NAB | Financials | -11.1 | -0.9% | -11.7 | 17 |
| Westpac | Financials | -6.9 | -0.9% | -6.3 | 17 |
| ANZ | Financials | -4.4 | 2.1% | -2.4 | 13 |
| Wesfarmers | Discretionary | -0.6 | 0.6% | -1.2 | 33 |
| Macquarie | Financials | 2.0 | 0.7% | -4.2 | 24 |
| Goodman | Real Estate | -4.9 | -1.2% | -11.9 | 30 |
| Woodside | Energy | 6.3 | -6.3% | 4.4 | 9 |
Source: FactSet, State Street Global Advisors as at 27 February 2025. We calculate an “earnings return” the return on the day of the earnings announcement. This information should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security. Past performance is not a reliable indicator of future performance. The stocks mentioned are not necessarily holdings invested in by State Street Global Advisors. References to specific company stocks should not be construed as recommendations or investment advice. The statements and opinions are subject to change at any time, based on market and other conditions.
Earnings Season Sector Trends
Figure 2 below provides the cap weighted returns and cap weighted EPS % changes during February reporting season. Technology continued the positive trend from 2024 with earnings estimates revised higher by +1.7% for the next 12 months. Technology ended February with a PE (NTM) of 81.7x which is many times that of any other part of the market. Typically, expensive valuations require continued positive earnings momentum. Communication services provided a positive trend change from 2024 with a +1% improvement in earnings expectations during reporting season. Other sectors saw either negative or flat earnings revisions.
Figure 2: Sector Returns, Earnings and Valuations
| Return | EPS Trend² | Valuation Multiple PE (NTM) | |
| S&P ASX 300 | -1.1% | -1.0% | 18.3 |
| Utilities | -5.9% | -1.9% | 15.3 |
| Communication Services | 3.8% | 1.0% | 26.5 |
| Staples | 3.6% | -0.1% | 20.3 |
| Health Care | -4.1% | -0.9% | 29.3 |
| Materials | 3.4% | -2.6% | 13.3 |
| Industrials | 2.1% | -0.5% | 20.0 |
| Energy | -6.9% | -3.4% | 12.3 |
| Financials | -4.7% | 0.0% | 17.7 |
| Technology | 1.8% | 1.7% | 81.7 |
| Discretionary | 2.9% | 0.1% | 25.9 |
Source: FactSet, State Street Global Advisors as at 27 February 2025. The underlying earnings data sourced from FactSet and represents market cap weighted returns and EPS for the representative indexes. The Reporting season earnings trend represents the % change from 31 January 2025 to 27 February 2025. Past performance is not a reliable indicator of future performance. Index returns are unmanaged and do not reflect the deduction of any fees or expenses. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income as applicable.
Trend Reversals
In Figure 3, we highlight other notable themes that dominated during February reporting season. Some of the characteristics we observed were consistent with investor preferences during trend changes and risk off markets. Higher beta (more volatile) stocks underperformed. Companies that had outperformed the most in the last 12 months reversed fortunes and underperformed. Companies with higher expected growth (3 to 5 year) also underperfomed.
Figure 3: Thematic Performance During February 2025 Reporting Season
| Themes | Description | Average return Feb 2025 |
| Higher Risk (Beta) | High Beta stock underperformed | -4.7% |
| Highest 12 month Return | Stocks with the best performance prior to February underperformed | -4.3% |
| Higher Long Term Growth | Stocks with higher 3-5 years growth underperformed | -4.8% |
| Higher Short Interest | Stocks with higher short interest underperformed | -3.0% |
Source: FactSet, State Street Global Advisors as at 27 February 2025. Methodology: for each characteristic we sort from largest to smallest and calculate the average return for the top quintile (top 20%). For example, we calculated the average return during February for the top 20% of stocks by Beta, we apply this ranking and return calculations across the various financial metrics displayed. Past performance is not a reliable indicator of future performance.
No short Squeeze in Feb 2025. Reporting seasons have in the past exhibited short squeezes. Sometimes the most shorted stocks see a relief rally as investors cover their shorts or underweight positions when the earnings news isn’t as bad as expected. “Sell the rumor Buy the fact”. On average we did not see a short squeeze in February reporting season with the most shorted companies down -3% underperforming the market.
Bottom Line
The February reporting season has been broadly dissapointing across the market as a whole, amongst some of the largest companies in the index and from some of the past market darlings. We have see a reversal in Momentum and a reversal in Higher Growth and Valuations remain rich especially in some cohorts like technology.