Brambles Ltd (ASX: BXB) $20.37

Pallet business BXB was smacked over 20% in May after significantly downgrading FY26 earnings, covered here. Over the last few months the stock has ground higher in anticipation of an improving outlook in FY27, although it’s still down almost 12% year-to-date and is trading in line with its average valuation over recent years, suggesting the market’s pricing the downgrade as one and done.

The issue then was pallet quality, and their inability to keep as many pallets in their global pool. This will be the pivotal question management needs to answer when they report in 2 weeks (i.e. repair capacity) and importantly, has the problem been fixed? Encouragingly, a UBS pallet user survey conducted last week found customer satisfaction with CHEP has improved and pallet quality is cited as a competitive advantage by 61% of respondents — a constructive read-through ahead of results.

Brambles has a strong track record of beating consensus, having exceeded estimates in every period where both figures are available over the last four years. However, the surprise downgrade in May damaged Brambles’ reputation for earnings predictability. With the decks swept clear three months ago, we’re leaning towards another solid report from BXB  on the 20^th.

Automation and digital investment also remain key watchpoints. Brambles is investing to support customers’ increasingly automated supply chains, with management expecting these non-pooling investments to deliver ROIC above 20% over time. We’ll be looking for updated FY27 capex guidance and greater clarity on when these investments will begin contributing meaningfully to earnings and free cash flow, particularly after weighing on near-term cash generation, this being the same trend that caused the repair quality issue.

• We’ve  kept BXB in our Active Growth Portfolios Hitlist but want some clarity from this month’s earnings before considering this stock.