Australia | Sep 19 2006
By Greg Peel
On July 21, 2004, Deutsche Bank upgraded building materials supplier Rinker (RIN) from Hold to Buy. At the time, the stock was trading at around $8.00.
It was a good call. Rinker went on the trade at $22.22 in April, 2006. Deutsche had kept its Buy rating all the way up. Unfortunately that price is now a distant memory, and while the stock retraced all the way back below $13.00, Deutsche stoically retained its Buy rating.
“Following meetings in the US last week, we believe that risks to the US housing market are on the downside given significant levels of inventory build largely due to high levels of speculative investment particularly in Florida. Therefore, we have reduced our target price, and consequently downgrade to Hold.”
This was today’s report. Deutsche analysts, like Macquarie analysts last week, decided to trot off to Florida to have a look for themselves. An unofficial source revealed the analysts’ first reaction when touring Florida was “Oops”.
“Given the lack of visibility regarding inventories, and housing uncertainty from the US builders and materials companies, timing of a turnaround in activity is uncertain.”
In other words – “Don’t blame us”.
Ahead of the May correction, Deutsche had set a target of $27.73 for Rinker. In May that dropped to $24.04, in July $17.93, and in August $16.41. Today the analysts have dropped the target by 28.2% to $11.78.
Last week Macquarie provided Rinker with its first Sell rating since the company split off from CSR (CSR). The analysts set a target of $12.00, which was the first target to be set below the traded price. While moving only to Hold, Deutsche has even eclipsed Macquarie to set a new target low in the FN Arena database. The stock closed yesterday at $12.99.
Rinker’s average target in the database is now $15.95, down from $16.53 yesterday. Many brokers are maintaining targets well over the traded price, and maintaining silence. JP Morgan – another broker who has held Overweight since last year – is still at $21.03. We haven’t heard anything for a while.