Earnings season reports show signs of a slowing economy but forecast profits remain relatively healthy, according to Goldman Sachs.
Australia’s largest listed companies have posted healthy profits in the 2022 financial year and although signs of an emerging slowdown will weigh on earnings growth in the near term, the downward trend appears less intense than analysts had feared.P/ASX 200 have reported their results for the financial year, representing more than half of the benchmark on a market capitalisation basis.
Rising prices for raw materials and other input costs for businesses, in addition to a tight labour market that many fear will push wages higher, risks prolonging a bout of above-target inflation.
Margins also offer another indication that profits currently appear healthier than anticipated. Although margins have generally come in weaker than forecast, with 36 per cent of companies missing consensus estimates for earnings on a per share basis compared to 21 per cent that have outperformed forecasts, reports so far show no sign of a rapid decline.“The average stock has only missed consensus earnings per share by -0.
In many cases, companies have yet to regain the level of profits enjoyed prior to the pandemic. This underscores the opportunity for healthy profit growth for certain businesses despite the challenges facing the economy in the near term.P/ASX 200 sectors will still not have returned to pre-pandemic levels of profitability, leaving solid room for growth even if some pockets of the economy are slowing down,” Mr Ross said.
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