Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ENERGY RESOURCES OF AUSTRALIA LIMITED, and other companies. For more info SHARE ANALYSIS: ERA

By Chris Shaw

Despite falls in equity prices over the past week the number of Buy ratings for Australian equities by the eight brokers under daily coverage in the FNArena database has barely moved, coming in at 53.2% this week against 53.1% last week. In total there were 17 upgrades and 18 downgrades in the period. The question as to why the number of Buy ratings still increased a little is answered through new initiations and re-initiations of coverage.

Among those enjoying a ratings upgrade were Bradken ((BKN)), which saw two brokers move to Buy from Neutral previously after the company announced the acquisitions of Norcast and Australian and Overseas Alloys.

Westfield Group ((WDC)) also enjoyed some upgrades during the week, this reflecting improved valuation and the potential for value creation assuming some US assets are sold as expected. Improved valuation following recent share price weakness was also behind upgrades for Coal and Allied ((CNA)) and Cochlear ((COH)).

On the flip side, better relative valuation elsewhere following solid performance by Australian office REITs has seen Dexus ((DXS)) cop more downgrades than upgrades in the past week, while reduced earnings guidance and weaker outlook commentary has seen ratings for David Jones ((DJS)) lowered on balance. The department store operator issued a shock profit warning mid-week that had noticeable repercussions for about everyone with consumer exposure in the share market.

Automotive Holdings ((AHE)) saw one downgrade from what had been a full complement of Buy ratings, this reflecting the expectation earnings will be impacted by the effect on auto sales of the mixed Australian economy and the recent natural disasters in Japan.

Along with its rating upgrades, Bradken received one of the only increase to earnings forecasts of note during the week, as brokers factor the newly acquired businesses into earnings models. Earnings estimates for Energy Resources of Australia ((ERA)) were also increased as management unexpectedly lifted full year production guidance. It has been a tough year for what once upon a time was Australia's leading producer of yellow cake.

Brokers went the other way on Rio Tinto ((RIO)) and lowered earnings forecasts post a mixed 2Q production report, while it was a similar story for Coal and Allied following a quarterly production report that highlighted some short-term headwinds.

With earnings estimates increased price targets for Bradken rose by the most during the week, increasing by around 7%. Minor increases to price targets were also enjoyed by Cardno ((CDD) and Transurban ((TCL)), reflecting an acquisition for the former and a quarterly traffic report for the latter.

With targets still being adjusted lower for Murchison Metals ((MMX)) following its update on the OPR and Jack Hills projects, the company saw the largest decrease in consensus price target, while David Jones and Automotive Holdings also experienced consensus target declines from changes to earnings estimates. Investors should note that while earnings forecasts for David Jones fell by more than 8% for FY11, following the shock announcement, the impact on further out earnings has materialised in double digits.

As with Murchison Metals this week, the impact on David Jones of its revised guidance should continue to flow through next week as more broker models are updated.

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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