Most results through this February earnings season have led investors to believe that profit growth is on the rebound for corporate Australia. Strong numbers announced in the fourth week only reinforced that confidence.

Morningstar analysts this week served up a reality check, though, laying out contributing factors that led to the growth bounce after the COVID-induced recession but also reasons why these will not persist over the longer term.

The last week of earnings turned out to be another busy week, with most of the focus on consumer-focused sectors such as retailers, buy-now-pay-later operators and travel-related companies.

The most awaited numbers came from supermarket giant Woolworths (ASX: WOW), which reported a 28 per cent jump in first-half profit to $1.14 billion, allowing it to increase interim dividend payout to shareholders.

Total revenue rose 10.6 per cent, with elevated sales in core businesses such as supermarkets, drinks and BigW amid increased spending during the coronavirus pandemic helping to offset higher costs.

Morningstar director Johannes Faul upgraded near-term operating profit estimates on the narrow-moated Woolworths but maintained his $29 a share fair value, saying long-term earnings estimates for the group were virtually unchanged.

“Sales remained elevated into the first seven weeks of the third quarter but the tide is about to turn,” Faul noted.

“We still expect the unwinding of unusually high Australian food sales to weigh on the core businesses of Woolworths and Coles from third-quarter fiscal 2021 and into fiscal 2022.”

Harvey Norman (ASX: HVN) also benefited from the consumers turn to retail therapy, more than doubling half-year profit to $464 million as sales for furniture, white goods and electronics jumped.

Total sales lifted 25.8 per cent to $5.12 billion, with chairman Gerry Harvey on Friday attributing the performance to his company’s ability to adapt to the changing retail landscape.

Retailers ride online shopping boom

The online shopping boom that Harvey alluded to helped deliver an almost three-fold increase in retailer Kogan.com’s (ASX: KGN) profit.

First-half results showed net profit surged to $23.6 million against $8.9 million a year ago, while gross sales almost doubled to $638.2 million, helped by a record breaking Black Friday trading period. The online retailer also more than doubled its interim dividend, to 16 cents per share.

The buy-now-pay-later industry has also been riding the coattails of the surge in online shopping, and Afterpay (ASX: APT) this week again leveraged on the growth to raise $1.25 billion to lift ownership of its business in the key US market.

The company reported its first-half net loss blew out to $79.2 million, from $31.6 million a year ago, but global underlying sales doubled to $9.8 billion and its net transaction margin rose to 2.2 per cent from 2.1 per cent.

The results encouraged Morningstar equity analyst Shaun Ler to lift his fair value estimate to $40 a share from $37, but he remains unimpressed by the $120 value assigned by the market. On cue, the stock was down 10 per cent on Friday.

“Afterpay’s growth outlook is no doubt strong, but we think its fundamentals are more than priced in, and it is pure investor exuberance buoying its shares into uncharted territory,” he said.

Smaller rival Zip Co (ASX: Z1P) also saw a blowout in its first-half loss to $455.9 million, mostly because of its takeover of the US-based Quadpay business. Zip’s revenue more than doubled to $159.8 million while customer numbers surged.

On the other side of the table, Scentre Group (ASX: SCG) has seen profitability disappear as the coronavirus pandemic wrecked foot traffic at its local Westfield shopping centres. It reported a full year loss of $3.73 billion, following a hefty write down in the value of its property portfolio.

Scentre offered an encouraging outlook saying rent waivers and rent provisions fell in the second half as the economy recovered, and demand at its malls remained strong at the end of December, with 98.5 per cent of space leased.

Travel sector awaits vaccine rollout

Another major landlord hit by the lack of foot traffic has been Sydney Airport (ASX: SYD). The country’s biggest airport operator slumped to a $145.6 million full-year loss, after border restrictions due to the pandemic resulted in a 75 per cent plunge in travelers.

Overall revenue fell 51 per cent with the airport providing rental relief to dozens of retail and property tenants. Chief executive Geoff Culbert says he is hopeful of a recovery in 2021, on the back of the vaccine programme that would enable the reopening of borders.

National carrier Qantas (ASX: QAN) also swung to an underlying half year loss of $1.03 billion. Revenue for the six months slid 75 per cent to $6.9 billion as international travel collapsed and domestic flying was restricted to just 30 per cent of capacity.

Morningstar analyst Angus Hewitt maintains his $5 a share fair value estimate on the no-moat the airline, saying while Qantas will likely remain loss-making in the second half of the fiscal year, longer-term forecasts remain largely intact.

“The key valuation question for Qantas is the rate at which the firm can return to profitability and recover to pre-pandemic levels of flying,” Hewitt said.

“At this point, we anticipate a steady recovery in air travel demand, with international borders gradually reopening from late calendar 2021 and Qantas returning to profitability in fiscal 2022.”

Travel agency Flight Centre (ASX: FLT) also bore the brunt of the border restrictions, posting an interim loss of $233.2 million as its holiday bookings business remains grounded.

Health boost for insurers

Meanwhile, Australia’s two biggest health insurers have reported strong earnings as coronavirus helped bring back focus on individual healthcare.

NIB Ltd (ASX: NHF) outlined a 16 per cent increase in first-half net profit to $66.3 million, although total revenue fell 1.1 per cent to $1.3 billion.

Its Australian residents health insurance business delivered a 42.2 per cent bump in operating profit, but a six-month deferral of last year’s premium price hike put the brakes on revenue growth. International inbound health insurance’s premium revenue also fell 5 per cent.

Larger rival Medibank (ASX: MPL) also saw a 27 per cent bump in first half net profit to $223.4 million. More importantly, the health insurer recorded its first six-monthly growth in accounts since 2013, signing up 49,000 new policyholders during the period. It will pay an interim dividend of 5.8 cents a share.

Morningstar equity analyst Nathan Zaia says the Medibank result wasn’t far off expectations and maintained his long-term forecasts and $2.90 fair value estimate, but remains cautious in the near term.

“We expect investment performance to moderate in the second half and into 2022, with running yields on fixed income much lower and a repeat of strong equity market returns not expected,” he said.

Finally, Australia’s biggest private hospital group Ramsay Health Care reported a hit to first half numbers from a government-enforced ban on elective surgery during the peak of the lockdowns last year.

Its net profit slipped 12.5 per cent to $226 million, with revenue also falling 6.6 per cent. The company still chose to reward investors again, paying an interim dividend of 48.5 cents.