Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features DATA#3 LIMITED., and other companies. For more info SHARE ANALYSIS: DTL

By Andrew Nelson

Unlike two weeks ago, when recommendation upgrades and downgrades by the eight brokers in the FNArena database were balanced, last week definitely went to the downgrade side of the ledger. A total of seven stocks were downgraded last week, while five enjoyed upgrades. Still, the net impact was minor, with Total Buy ratings in the FNArena database now standing at 44.00% versus 44.76% the week prior.

There were no stocks lucky enough to book more than a single upgrade, with the same being true for downgrades. The upgrades featured infrastructure companies (both physical and data) and a number of REITs. On the downgrade side of the street, we find some more REITs, plus healthcare, mining/energy services and another data company.

We’ll lead off this week’s proceedings with Cardno ((CDD)), which was upgraded to Buy from Hold by RBS. The broker noted Friday the share price has dropped 18% since peaking in August post the FY result, with current levels now offering quite a good buying opportunity. The stock enjoys two Buys and a Neutral in the FNArena Database. Macquarie is the broker sitting on Neutral, saying back in mid-August post the FY result that shares were too dear. Well, according to RBS, they aren’t anymore.

Next on our upgrade list is Queensland based IT service company Data#3 ((DTL)). Again, the benefactor is RBS, with the broker lifting its call to Buy from Hold after noting the share price has dropped nearly 20% in the past two months. The broker thinks the market is being a bit too negative about the company's outlook and not paying enough for a 7.2% fully franked yield. The stock is only thinly covered by Australian major brokers, enjoying just one straight Buy in the FNArena database.

Dexus Property ((DXS)) was lifted to Hold from Sell by Deutsche Bank last week, the broker thinking a rationalisation in the US market is imminent and that Dexus will be a definite beneficiary as it looks to dispose of its US portfolio. The stock rates a flat Neutral sentiment in the FNArena Database, with one Buy, five Holds and one Sell all nicely balanced. Macquarie is the broker holding the Sell and it does so on valuation grounds, otherwise seeing a chance of increasing earnings opportunities in FY13.

GPT ((GPT)) was boosted to Hold from Sell by Credit Suisse, the broker seeing an increased level of value post a minor sell down in the shares. The stock is just on the south side of being Neutrally regarded, with one Buy beat out by two Sells and four Holds. Even the brokers on Sell see reasonable earnings prospects, with valuation the primary concern of note among brokers in the FNArena database.

Last amongst our list of upgrades is Macquarie Atlas Roads ((MQA)), which was boosted to Buy from Neutral by analysts from former parent Macquarie. The broker made the move on a rolling forward of its valuation model and a share price drop last week after the announcement of some unfavourable tax deduction rulings by the French Government.  

The same news also leads off the downgrade section of out report, as while analysts at Macquarie did little but cut 2012-14 dividend forecasts by 9-12%, RBS downgraded its recommendation to Hold from Buy, also cutting its valuation and earnings/distribution forecasts. The stock is otherwise positively regarded by Australian major brokers, with three Buys and three Holds recorded in the FNArena database.

Investor services and market technology company, Computershare ((CPU)) was cut to Hold from Buy by Deutsche Bank, with the broker seeing only limited value on a near-term basis. EPS forecasts and the price target were cut and the broker notes that an improvement in its view is now dependent upon improvement in the macro economic outlook and a subsequent increase in corporate activity. The stock remains positively regarded in the FNArena database, boasting five Buys and three Holds.

Discovery Metals ((DML)) was cut to Hold from Buy by RBS, with the broker noting the company is now in play and not trading on fundamentals post a takeover approach from Chinese private equity at $1.70 per share. The broker went on the recommend risk-averse investors to look at trimming their holdings into price strength nearer to $1.70. The stock rates a flat neutral in the FNArena Database, with one Buy, one Sell, one Hold and UBS moving to Restricted (prior Hold) post the news.

FKP Property ((FKP)) was cut to Sell from Hold by BA-Merrill Lynch on the view management's cash before profits push to address an unsustainable build up of unsold inventory will take a bite out of margins and thus short-term profitability. Concerns about balance sheet strength and future business direction were also noted. The stock has moved to negatively from neutrally regarded in the FNArena Database, with four Holds and now one Sell.

UBS also took the knife to Lynas Corp. ((LYC)) downgrading its call to Hold from Buy on a less than rosy outlook for the rare earths market  and concerns about LAMP commissioning risks given the social, political and legal argy bargy going on in Indonesia. Post the change, the stock enjoys two Buys and three Holds in the FNArena Database.

UBS also cut its recommendation to Hold from Buy on Resmed ((RMD)) after a marking to market for FX assumptions. Forecasts and the price target were also lowered. Despite the downgrade, the stock remains fairly positively regarded on the FNArena Database, boasting four Buys and four Holds.

Lastly, Sirtex Medical ((SRX)) was downgraded to Hold from Buy by UBS, the one broker maintaining a recommendation in the FNArena Database. UBS reported that while 1Q volumes were strong and growth was impressive, unfavorable FX conditions took off a lot of the shine. The broker also notes that shares having run pretty hard this year -125% to be exact- supporting the inclination to drop the recommendation.

Taking a look at major price target moves among stocks covered by two or more brokers, there wasn’t that much on the positive side and only one stock that booked a move of more than 1%. Spark Infrastructure ((SKI)), which is covered by seven brokers in the FNArena database, saw its average price target lifted by 1.24% up to $1.55, which is an 8% premium to the average traded price as of Friday. Four Holds and three Buys are included in the FNArena Database.

There were several moves in excess of one percent to the downside, with Infigen Energy ((IFN)) suffering the biggest decline. The company’s average price target was trimmed by 12.1% last week, although shares still remain a strong Buy in the database, with three Buys compared to one Hold.

Jetset Travelworld ((JET)) saw its average share price reduced by 7.09% to 54c, which represents a 53% premium to current levels. Ardent Leisure ((AAD)) is next on the list, although its target decline is far less substantial. The average target in the FNArena Database was down 1.93% to $1.42 last week, still offering 3.2% upside to current levels.

As well as suffering a recommendation downgrade from UBS, Lynas Corp. also saw the broker cut its price target to $1.00 from $1.10, which helped the average target in the FNArena Database decline by 1.71% to $1.15. According to the database, there is still 34.5% upside from current levels.

In earnings forecasts, major banks enjoyed increases ahead of full year profit reports in a few weeks’ time (excluding CommBank). Companies enjoying some big positive moves include Orica ((ORI)), Technology One ((TNE)) and Incitec Pivot ((IPL)).

On the negative side of the ledger we find Graincorp ((GNC)), Macquarie Atlas and iron ore minnow Gindalbie ((GBG)). Both Graincorp and Macquarie Atlas saw earnings estimates correct by circa 20% during the week.

In earnings forecasts, major banks enjoyed increases ahead of full year profit reports in a few weeks’ time, excluding CommBank ((CBA)). Companies enjoying some big positive moves include Orica ((ORI)), Technology One ((TNE)) and Incitec Pivot ((IPL)). On the negative side of the ledger we find Graincorp, Macquarie Atlas and iron ore minnow Gindalbie ((GBG)). Both Graincorp and Macquarie Atlas saw earnings estimates correct by circa 20% during the week. 
 

Total Recommendations	Recommendation Changes
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