Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features BENDIGO & ADELAIDE BANK LIMITED, and other companies. For more info SHARE ANALYSIS: BEN

By Chris Shaw

With earnings season almost complete it has been a busy week for changes to broker ratings, the FNArena database showing a total of 19 upgrades and 51 downgrades to recommendations by the eight brokers covered. Total Buy ratings now stand at 52.15%, well down from 53.86% last week.

Among the upgrades were four companies where ratings were lifted by more than one broker – these were Bendigo and Adelaide Bank ((BEN)), CSL ((CSL)), David Jones ((DJS)) and Toll Holdings ((TOL)).

For Bendigo Bank, both RBS Australia and BA Merrill Lynch upgraded to Hold recommendations from Sell previously, the former as the recent profit result showed some signs of stabilisation and the latter on valuation grounds post recent share price weakness. Across the market price targets and earnings estimates for the bank were adjusted.

In contrast to a less bad result from Bendigo Bank, CSL delivered strong earnings thanks to albumin and specialty products performing well. Brokers lifted earnings estimates and price targets on the back of the result and both Macquarie and BA-ML now see enough value to upgrade to Buy ratings from Neutral previously.

For David Jones ((DLS)) it was the turn of both UBS and RBS Australia to upgrade to Neutral ratings from Sell previously, this to reflect both better value on the back of recent share price weakness and the company having better positioned itself for stronger FY13 results by clearing excess inventory.

Toll Holdings ((TOL)) has also improved its position and with potential for new contracts and some scope for positive earnings surprise relative to low expectations, both Macquarie and Deutsche Bank have upgrade to Buy ratings. This was partially offset by Credit Suisse downgrading to Neutral from Outperform on valuation grounds.

Among the other upgrades, a strong result from Ausenco ((AAX)) prompted UBS to reverse a recent downgrade and move to Buy from Sell, almost doubling its price target for the stock in the process. A similarly solid Coca-Cola Amatil ((CCL)) result, particularly given tough markets and a dispute with a key customer (Woolworths), was enough for Credit Suisse to upgrade to a Neutral view.

Emerging value following recent underperformance was enough for Citi to upgrade Oil Search ((OSH)) to Buy from Neutral, while around the market earnings estimates and price targets for the stock were largely increased following a better than expected profit result.

Super Retail Group ((SUL)) delivered one of the standout results in the consumer discretionary sector and this was enough for BA-ML to upgrade to a Buy rating, while again estimates and price targets across the market were lifted post the result. 

On the downgrade side those companies copping a cut in rating from more than one broker were Charter Hall Office ((CQO)), Envestra ((ENV)), Fleetwood ((FWD)), iiNet ((IIN)), Industrea ((IDL)), Kingsgate Consolidated ((KCN)), Ramsay Health ((RHC)), Tatts Group ((TTS)), Woodside ((WPL)) and Wotif.com ((WTF)).

Valuation was behind the downgrades to both Charter Hall Office and Envestra, with both Credit Suisse and Citi seeing limited share price upside from current levels for the former even allowing for current corporate interest and RBS and Macquarie taking similar views with respect to the latter.

While Fleetwood's result was broadly as expected, the solid earnings outlook is now priced in according to RBS, a view shared by both UBS and Credit Suisse. For iiNet increasing competitive pressures means the result was a little on the disappointing side for both RBS and Credit Suisse, while both also see less relative value in the stock at current levels than was the case a few months ago.

A poor profit result from Industrea meant earnings estimate across the market have been cut significantly, which leaves the outlook for little earnings growth this unattractive when compared to peers. The earnings miss has also raised the question of management credibility in the view of BA-ML.

Kingsgate Consolidated's earnings were broadly in line with expectations but the company surprised by announcing a capital raising that prompted cuts to estimates and targets. As well, Kingsgate faces a challenging year from an operational perspective in the view of both Citi and BA-ML. 

Uncertainty with respect to the outcome of proposed changes to private health insurance pose enough risks for Ramsay Health that both Macquarie and Deutsche Bank downgraded to a Neutral rating, this despite a result broadly in line with expectations. Valuation was behind the downgrade of Credit Suisse.

Limited upside potential, especially given some recent share price strength, saw both Macquarie and Citi downgrade to Sell ratings on Tatts, while less value following recent gains was enough for Citi and Credit Suisse to downgrade Woodside to Neutral from Outperform in both cases. A similar story is behind downgrades by Macquarie and BA-ML on Wotif.com, as tough market conditions suggest limited upside from current share p[rice levels.

In terms of changes to price targets, the largest increase was seen in Ausenco, as along with the near doubling in target from UBS, the likes of RBS, Macquarie and Deutsche also lifted their targets significantly. 

Aside from the capital raising induced changes to targets for Kingsgate, the most significant cut in target was experienced by Alumina Ltd ((AWC)), both RBS Australia and JP Morgan cutting their targets on revisions to earnings and related commodity price estimates. 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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