Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

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By Chris Shaw

In another week where downgrades have dominated, brokers in the FNArena database have lowered ratings on 12 stocks while upgrading just four. This brings total Buy ratings to just a touch under last week's 57.7%.

Among the upgrades was BlueScope Steel ((BSL)), Macquarie moving to an Outperform rating from Neutral on expectations the “new” BlueScope will be a closer play on the domestic economic cycle. This reflects a reduction in some loss making export operations as part of an operational restructuring. 

Macquarie expects the market's confidence in BlueScope will lift as the proposed cost out story and earnings improve, which should be enough to drive a re-rating of the stock in time. Earnings and price target have been adjusted not only by Macquarie but also by the likes of JP Morgan.

A strategic review by Goodman Fielder ((GFF)) has also prompted an upgrade by Macquarie to Neutral from Underperform, the broker taking a slightly more optimistic approach to new management's proposed cost out story. Improved valuation also supports the upgrade in rating, as do increases to earnings estimates. At the same time Macquarie has trimmed its price target for the stock.

JP Morgan meanwhile has upgraded to Overweight from Neutral on Lend Lease ((LLC)), driven by what it sees as a solid medium-term earnings growth outlook and an attractive valuation at current levels. The broker has also identified some positive near-term catalysts such as new work for Valemus and good mixed-use and residential development pipelines. Forecasts and price target have also been adjusted.

Sonic Healthcare ((SHL)) enjoyed an upgrade to Neutral from Sell by UBS, the broker now adopting a more positive stance on opportunities in the UK pathology sector as outsourcing momentum increases. Factoring in the potential also saw UBS adjust its price target higher for the stock.

On the downgrade side, Aston Resources ((AZT)) has been downgraded to Neutral from Outperform by Macquarie to reflect uncertainty from board changes arising from a difference of opinion in relation to corporate strategy. 

While the Maules Creek project continues to offer promise, the board issues have seen Macquarie remove a previous takeover premium, which also means a cut in price target. A similar boardroom issue at Mount Gibson ((MGX)) has also seen Macquarie downgrade to an Underperform rating from Neutral previously.

Both UBS and BA Merrill Lynch downgraded Campbell Brothers ((CPB)) during the week, both on valuation grounds to reflect recent share price gains. In both cases the brokers moved to Neutral ratings from Buy recommendations previously, though BA-ML did lift its price target slightly.

Recent outperformance was also enough for JP Morgan to downgrade Coca-Cola Amatil ((CCL)) to Neutral from Overweight, while earnings estimates have been trimmed in anticipation of another wet summer impacting on demand. 

Citi's downgrade on Commonwealth Bank ((CBA)) to Sell from Neutral is based on the view a new CEO will be looking for growth avenues, so potentially putting some downward pressure on the share price. As well, Citi's view is the recent trading update by the bank implies a slow start to the new fiscal year. 

A strategy day was enough to prompt RBS Australia into making minor changes to its model for Iluka ((ILU)), with earnings and price target both adjusted. While the stock now offers an attractive yield there is potentially less growth on offer, which supports the broker's move to a Hold rating. Other brokers have also adjusted earnings forecasts and targets for the stock post the update.

While Incitec Pivot's ((IPL)) full year earnings broadly met expectations Credit Suisse downgraded to a Neutral rating from Outperform, this reflecting a tempering of expectations in coming years. Price target was unchanged, so the downgrade was a valuation call by the broker. Others in the market have made modest changes to earnings forecasts and price targets.

Valuation also explains Citi's downgrade of James Hardie ((JHX)), as the company delivered a solid 2Q update with some signs of volume and margin improvement. Price targets and earnings estimates have been adjusted modestly across the market on the back of the quarterly result.

For MAp Group ((MAP)) valuation is also an issue in the view of JP Morgan, who has downgraded to Underweight from Neutral given the share price is now in line with its estimate of value. Also supportive of the downgrade is the stock is trading at a premium to the market, this despite the possibility of softer passenger numbers in coming months. 

Peet ((PPC)) delivered a weak update and a lowering of earnings guidance for the full year caused brokers to quickly adjust forecasts and price targets. Both UBS and Macquarie downgraded to Neutral ratings from Outperform previously, as weak operating conditions and capital levels suggest outperformance is unlikely in the shorter-term.

In terms of other changes to broker models, earnings expectations for Lynas Corporation ((LYC)) have seen minor changes following a site visit to the LAMP facility in Malaysia, while a solid quarterly for associate companies has prompted some minor increases to earnings estimates and price target for Cabcharge ((CAB)).

A revaluation of projects has seen BA-ML make a minor increase to its price target for Santos ((STO)), while earnings forecasts for Crown ((CWN)) have also seen minor changes following a solid quarterly result from the MPEL venture in Macau.

Changes in depreciation and amortisation charges have caused Credit Suisse to lower earnings forecasts for Alacer Gold ((AQG)), while Sims Group ((SGM)) selling Australian Refined Alloys has prompted some minor model changes on the part of brokers covering the stock.

While Elders ((ELD)) delivered an improvement in full year earnings, the result still falls short of acceptable according to RBS Australia, with both RBS and Citi adjusting forecasts and price targets as a result.

A disappointing AGM update has seen Macquarie lower earnings forecasts and price target for Salmat ((SLM)), with JP Morgan and Credit Suisse also reducing their estimates. For BHP Billiton ((BHP)) a fall in price target reflects changes to commodity price assumptions from Macquarie, while Credit Suisse has also tweaked its model. 

ARB Corporation ((ARP)) is expected to experience some difficulty in sourcing parts given flooding in Thailand, where most of its products are sourced. Both Macquarie and Credit Suisse have adjusted estimates, with the former also trimming its price target for the stock.

Total Recommendations	Recommendation Changes
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