Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features NATIONAL AUSTRALIA BANK LIMITED, and other companies. For more info SHARE ANALYSIS: NAB

By Chris Shaw

Among brokers in the FNArena database the onset of earnings confessions season has seen downgrades far outweigh upgrades, with 11 ratings being lifted compared to 35 being lowered. Total Buy ratings have dipped below the 50% mark and currently stand at 49.22%.

Energy producer AWE ((AWE)) was the only stock to be upgraded by more than one broker, both Citi and Credit Suisse moving to Buy recommendations from Hold previously. For Credit Suisse the upgrade is simply a valuation call after recent share price weakness, while Citi points out the stock also offers material upside if drilling in the Perth Basin proves to be successful. Others in the market adjusted earnings estimates and price targets for AWE post the company's quarterly production report.

JP Morgan's upgrade of Commonwealth Bank ((CBA)) to Overweight from Neutral is also largely a value call as the stock appears attractive at current levels, this from both a yield perspective and given scope for some improvement in earnings growth.

Recent share price weakness has improved the value on offer in both Emeco Holdings ((EHL)) and Jetset Travelworld ((JET)) and this has been enough to prompt upgrades from BA Merrill Lynch and Deutsche Bank respectively, while a strong balance sheet and strong cash flow generation are enough for Citi to upgrade Mount Gibson ((MGX)) to Buy from Hold despite ongoing concerns related to relatively short mine life.

ResMed ((RMD)) delivered better margins in higher volume products and some gains in market share and this prompted an upgrade to Overweight from Neutral by JP Morgan, though at the same time BA-ML downgraded to a Hold rating given a view there is limited upside from current levels at present. Credit Suisse also downgraded its rating on the stock.

Credit Suisse has started to see some value in Stockland ((SGP)) following share price weakness this year and so has upgraded to a Buy rating, while UBS has similarly upgraded Wotif.com ((WTF)) to a Buy rating on valuation grounds.

JP Morgan can no longer justify anything below a Neutral rating on Woodside ((WPL)) following the company's sale of a stake in the Browse project, the positive read through for valuation and the potential of the project the transaction implies.

With respect to downgrades in ratings, the Australian banks featured prominently this week. ANZ Banking Group ((ANZ)) saw its rating cut by both RBS Australia and UBS, the former to Hold from Buy and the latter to Sell from Hold. Valuation and some emerging earnings headwinds are the reasons for the change by RBS, while recent strength has UBS suggesting now is time to take some profits in the stock.

A strategic review of its UK operations by National Australia Bank ((NAB)) was broadly as the market had expected, but concerns about provisioning levels were enough for JP Morgan to downgrade to a Neutral rating. Deutsche made a similar move given its view there remains some downside risk to earnings. Westpac ((WBC)) was equally not immune to downgrades among the banks as UBS cut its rating to Neutral, this also a valuation call given recent share price gains.

Consolidated Media Holdings ((CMJ)) also saw two downgrades (just as ANZ did), both to Hold from Buy by Macquarie and Citi. Market speculation James Packer will sell his stake in the group has driven trading of late but as Citi notes, at current levels it is difficult to justify the value the market is ascribing to the company even allowing for some corporate premium.

DuluxGroup's ((DLX)) proposed acquisition of Alesco ((ALS)) saw both RBS and JP Morgan move to Neutral ratings from Buy previously, RBS noting the move would take some time to deliver a positive earnings boost and JP Morgan seeing the current time as a good one to pull back its rating given good share price performance over the past year. Alesco was also downgraded to Hold by Credit Suisse given the potential for corporate activity has the stock fairly valued for this stage of the cycle.

March quarter earnings for Imdex ((IMD)) were disappointing, especially given an upbeat update from the company in February, so both RBS and BA-ML downgraded ratings to Hold from Buy. The changes also reflect adjustments to earnings estimates and price targets for the stock.

Credit Suisse made the same move on Super Retail ((SUL)) for the same reasons, noting while the company is a rarity in that it is a well performed retail stock at present, share price gains suggest little upside scope shorter-term.

SAI Global ((SAI)) also suffered at the hands of brokers post revisions to earnings guidance, RBS, Citi and JP Morgan all cutting ratings to Hold from Buy. RBS suggests valuation now looks stretched given revised earnings expectations, while JP Morgan is less bullish given the stock is clearly being subject to macro conditions at present.

Downgrades for the likes of Discovery Metals ((DML)), AMP ((AMP)) and Goodman Fielder ((GFF)), all to Hold recommendations from Buy previously, are also valuation driven calls, while low volumes from a tough operating environment and the ongoing threat of increased competition have caused Citi to downgrade ASX ((ASX)) to Neutral from Buy. 

As far as changes in earnings estimates go, energy companies dominate this week's table of positive changes, alongside office property funds Investa ((IOF)) and CPA, while Ardent Leisure ((AAD)) and ResMed equally joined the positive crew post well-received market updates.

On the negative side, miners and energy producers equally dominate, alongside Jetset Travelworld, Air New Zealand ((AIZ)), SAI Global and Imdex ((IMD)).
 

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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