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

Over the past week the changes in recommendations by the eight brokers in the FNArena database have been fairly evenly spread between upgrades and downgrades. The changes bring total Buy ratings to 49.13%.

Among the stocks upgraded were three companies in the oil and gas sector, where Citi has reviewed ratings following recent share price underperformance. For both Aurora Oil and Gas ((AUT)) and Beach Energy ((BPT)) Citi has upgraded to Neutral ratings from Sell previously, while Oil Search ((OSH)) has been upgraded to Buy from Neutral. 

In all three cases valuation has improved despite a weakening share price, the analysts assure. They like Oil Search in particular for its low risk growth and the upside from LNG projects being developed.

Elsewhere, Macquarie has upgraded Bendigo and Adelaide Bank ((BEN)) to Outperform from Neutral, as while earnings estimates and price target are unchanged, the broker sees margin concerns for the regional lender as being overplayed by the market at present. This implies value at current levels.

Macquarie has also upgraded a number of other ratings, moving to Outperform from Neutral on Ramsay Health Care ((RHC)) post a review of private health expectations. Revenue growth and margin expansion should continue and given this Macquarie has lifted earnings estimates and price target, which supports the upgrade.

Royal Wolf ((RWH)) has expanded its rental fleet and this has prompted Macquarie to adjust earnings forecasts and price target. The changes have improved the value on offer and sees the broker upgrade to an Outperform rating. On valuation grounds Macquarie has also upgraded QBE Insurance ((QBE)) to Outperform from Neutral.

While still seeing BlueScope ((BSL)) as a high risk play, BA Merrill Lynch has upgraded to a Buy rating from Hold previously. The shift to a more positive view reflects current increases in steel margins, an improved balance sheet and an improvement in downside risk scenarios.

James Hardie ((JHX)) beat Deutsche Bank's forecasts with its full year profit result, by enough so the broker has lifted estimates and its price target for the stock. Growth potential from a recovery in the US economy has prompted Deutsche to upgrade to a Buy rating from Neutral.

JP Morgan has reviewed the Australian media sector and the result is changes to earnings estimates and price targets across the sector. For Prime Media ((PRT)) specifically the stockbroker's price target has increased slightly, which justifies a shift to an Outperform rating from Neutral previously.

Following the sale of its 50% stake in the Port of Portland, Deutsche sees risk Australian Infrastructure ((AIX)) uses the proceeds to internalise management. The asset sale generates an increase in price target but on valuation grounds the broker downgrades to Hold from Buy.

Campbell Brothers ((CPB)) delivered a solid profit result but Macquarie continues to see risk of a pullback in exploration spending by junior resources companies. This has the potential to impact on Campbell's minerals division earnings and this suggests limited scope for outperformance. To reflect this Macquarie downgrades to a Hold rating from Buy previously.

Macquarie has also downgraded to a Hold rating on Westpac ((WBC)) given lower margin expectations for banks in general. The resulting changes in forecasts saw the broker lower its price target for the stock.

Interim earnings for Elders ((ELD)) disappointed relative to Citi's expectations, a major issue being the lack of progress evident in operations in the core rural services business. Cuts to earnings forecasts and price target support the broker's downgrade in rating (to Neutral from Buy, High Risk).

Citi also downgraded Graincorp ((GNC)) to Hold from Buy post interim profit results, though in this case not because of any disappointment with the result. Rather, Citi was impressed and lifted earnings forecasts through the next three years on the back of the result; the downgrade in rating reflects the recent share price increase.

Weak earnings guidance from Ridley Corporation ((RIC)) was enough for RBS Australia to downgrade to Hold from Buy, as revised earnings forecasts suggest the stock is fair value around current levels. Price target was also adjusted lower following the earnings adjustments.

Still weak retail sales and the expected impact on volumes and margins for Myer ((MYR)) saw RBS also downgrade its rating to Hold from Buy. While management are doing a reasonable job in RBS's view, there is little that can counter the weak trading environment at present and this limits any scope for share price outperformance.

In terms of changes to price targets and earnings forecasts, the largest increase in target was for Panoramic Resources ((PAN)), while the largest cut was for Thorn Group ((TGA)) post the company's full year profit result.

With regards to earnings changes, Goodman Group ((GMG)) enjoyed the largest increases to forecasts as Macquarie revised its model, while the major cuts were experienced by Sydney Airport ((SYD)) given concerns over duty free sales and the upcoming expiry of a rental guarantee, and by Australian Infrastructure ((AIX)). 

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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