Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features CARDNO LIMITED, and other companies. For more info SHARE ANALYSIS: CDD

By Chris Shaw

For the second week in a row downgrades from the eight brokers in the FNArena database have outnumbered upgrades, this week by a score of 12 to three. This brings total Buy recommendations to 58.7%, down from last week's 59.3%.

Among the few receiving an upgrade this week were Cardno ((CDD)), Macquarie lifting its rating to Outperform from Neutral on the back of the company announcing the acquisition of TEC in the US. The new assets are seen as a good fit with existing operations and should boost earnings.

Macquarie also upgraded fund manager Henderson Group ((HGG)) to Neutral from Underperform on valuation grounds. Looking through short-term market headwinds suggest the stock is attractive even post some cuts to earnings estimates, while a 6% dividend yield is also viewed positively by the broker.

Toll Holdings ((TOL)) was also upgraded by Macquarie to Neutral from Underperform, this change also reflecting an improved valuation for the stock at current levels. A review of its model saw Macquarie make minor changes to earnings forecasts and price target.

On the resources side, an initiation of coverage by UBS with a Buy rating on Atlas Iron ((AGO)) has lifted overall ratings for the stock, while bringing about a minor reduction in consensus price target given UBS set a lower target than others in the FNArena database.

Among the companies where ratings were downgraded was Super Retail Group ((SUL)), Citi, BA Merrill Lynch and Credit Suisse all downgrading to Neutral ratings from Buy previously on the back of the purchase of the Rebel Sport assets.

The general view is that the assets being acquired are not top quality and a full price is being paid, while the magnitude of the deal also changes Super Retail's risk profile going forward. Price targets have thus been reduced on the back of the acquisition, while earnings estimates have been adjusted lower to reflect earnings dilution from a share issue to pay for part of the purchase.

While a soft retail environment won't help Super Cheap succeed with the Rebel Sport purchase, it has also seen Deutsche Bank downgrade to a Hold rating on Carsales.com ((CRZ)), the broker also lowering earnings estimates as well as its price target.

It is a similar story for the likes of Computershare ((CPU)) with RBS downgrading to a Hold rating on valuation grounds given tough operating conditions, Credit Suisse downgrading on Aristocrat Leisure ((ALL)) to an Underperform rating and Macquarie downgrading to a Neutral rating on Ten Network ((TEN)) – all on the same basis.

Tough conditions saw Fletcher Building ((FBU)) lower earnings guidance and brokers responded by cutting forecasts and price targets accordingly. Only Macquarie saw fit to downgrade to a Neutral rating from Outperform, the broker arguing the tough environment makes outperformance for the shares unlikely in the shorter-term. 

Oz Minerals ((OZL)) also copped a downgrade to a Neutral rating from Credit Suisse post a quarterly production report that disappointed on the gold side, while Deutsche Bank downgraded Energy Resources of Australia (ERA) to Hold on the back of an unexpected rights issue. Rio Tinto ((RIO)) is underwriting the capital raising and is likely to boost its equity ownership past 80% as a result.

Changes in price targets were largely tied to changes in earnings estimates for the industrial plays such as Cardno and Toll Holdings, while for resources stocks such as ERA, Oz Minerals and PanAust ((PNA)) the changes tended to reflect either production reports falling short of expectations or adjustments to commodity price assumptions by brokers. 

The consensus target for Jetset Travelworld ((JET)) has fallen as UBS's initiation added a lower target than those already in the market.

Changes to earnings forecasts for Macquarie Airports ((MAP)) were modest following September traffic data, while a better performance on costs contributed to increases to earnings forecasts for Fortescue Metals ((FMG)). 

Estimates for Caltex ((CTX)) moved slightly higher as broker models were updated for the latest refiner margins, while better volumes and cost performance saw estimates lifted for mineral sands play Iluka ((ILU)). 

Cochlear (COH)) continues to struggle from an earnings perspective given uncertainty with respect to total costs relating to its hearing implant recall, while a slower than expected ramp-up of some operations has led to Macquarie trimming estimates for Beach Energy ((BPT)). 

For Bank of Queensland ((BOQ)) full year earnings were a little lower than expected and so estimates have been trimmed, the changes also impacting on price targets for brokers in the database. BHP Billiton ((BHP)) and Customers ((CUS)) also experienced minor changes to earnings estimates over the week.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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