Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features NEWS CORPORATION. For more info SHARE ANALYSIS: NWS

By Chris Shaw

Over the past week brokers in the FNArena database have upgraded three ratings while downgrading seven stocks. Total Buy ratings now stand at 51.66%.

Among the upgrades were David Jones ((DJS)), where Macquarie moved to a Buy rating from Neutral previously. This reflects the view a relief rally is possible as the downgraded earnings outlook is now in the price and issues on the credit card side of the business have now become exposed. This has driven down the share price and leaves scope for a bounce in the broker's view.

Others in the market reacted to the interim profit result and weak guidance far more harshly, with UBS, Deutsche Bank and RBS Australia all downgrading to Sell recommendations from Neutral ratings previously.

UBS continues to see downside earnings risk and suggests there is limited value at current levels given this risk. Deutsche Bank also sees some execution risk as David Jones attempts to restructure its operations, while RBS Australia suggests the re-basing of earnings over the next few years is not fully priced into the stock at present.

Macquarie also upgraded News Corporation ((NWS)) during the week, lifting its rating to Neutral from Sell as the sale of NDS was factored into its model. For Macquarie the sale is a positive for the valuation of News, which when added to the removal of a discount for regulatory uncertainty sees the broker move to a less negative view.

Sigma Pharmaceuticals ((SIP)) reported full year earnings this week and while metrics improved, the consensus view is the industry outlook remains difficult. Deutsche is the only broker in the database to rate Sigma as a Buy, seeing scope for additional earnings growth and capital management in coming periods.

Neutral and Sell ratings continue to dominate for Sigma, with brokers adjusting forecasts and price target post the full year result.

Among the other downgrades over the past week was RBS Australia cutting its recommendation on Graincorp ((GNC)) to Neutral from Buy. Potential for the company to be involved in corporate activity given consolidation in the sector is a potential positive for valuation, but in RBS's view this is priced in at current levels. The downgrade in rating is therefore a valuation call.

RBS also lowered its rating on Nexus Energy ((NXS)) to Neutral from Buy post the group's Longtom field review. The downgrade in reserves creates uncertainty, while the downgrade is also a valuation call given the impact on value and price target resulting from the reduction in reserves at the project.

While Reckon ((RKN)) will save some royalties from the ending of its relationship with international (ex) partner Intuit, the flip side in Macquarie's view is Reckon will need to spend more on R&D going forward to compete with peers. There is also the risk of some customer leakage from the decision, which reinforces the broker's downgrade to a Sell rating from Neutral previously.

For UBS, the de-merger of Telecom New Zealand ((TEL)) being completed means the market should now focus on the growth outlook, which is not overly positive in the broker's view. While mobiles are performing well, this won't be enough to offset broader declines. This implies the market is overpaying for growth at current levels. This has seen UBS downgrade to a Sell rating from Neutral previously.

Significant changes in price targets were limited to the downside over the past week, with targets for David Jones falling significantly as brokers adjusted their models to reflect lower earnings guidance. Fellow retailer Kathmandu ((KMD)) suffered a similar fate, as again brokers lowered forecasts and price targets to reflect a weak interim profit result.

Aside from Kathmandu and David Jones, the most significant cuts in earnings estimates were seem in Atlas Iron ((AGO)), the changes reflecting lost production due to Cyclone Lau causing operations to be shut down.

Beach Energy ((BPT)) enjoyed the most significant increases in earnings estimates, this as brokers adjusted their models to reflect the group's Egypt project commencing production earlier than had been expected.

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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