Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features TELSTRA GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TLS

By Chris Shaw

Downgrades to stock broker ratings for individual stocks continue far outweighing upgrades and the past week proved once again no exception. The eight brokers in the FNArena database lifted recommendations on just four companies while downgrading 24 stocks. Total Buy ratings now stand at just 50.56%, the lowest level for some time despite the share market effectively moving sideways.

Among the upgrades was Aurora Oil and Gas ((AUT)), where JP Morgan lifted its rating to Neutral from Sell. While full year earnings saw both UBS and Credit Suisse downgrade to Neutral ratings from Buy previously, JP Morgan factored in its findings from a recent site visit and lifted its valuation and price target. This was enough for the broker to lift its rating to the same level as UBS and CS.

OM Holdings ((OMH)) was also upgraded to Neutral from Sell by RBS Australia, a valuation call as downside risks to earnings from lower manganese prices now appears priced into the stock following a share price fall of around 70% over the past year.

Deutsche Bank has upgraded Oz Minerals ((OZL)) to Buy from Hold following changes to commodity price and foreign exchange assumptions. While the changes meant a trimming in price target, the broker sees improved value at current levels and upgrades accordingly.

The final upgrade of the week was Telstra ((TLS)), where BA Merrill Lynch has lifted its rating to Neutral from Underperform. There is increased scope for capital management and a more stable earnings outlook in general in the broker's view, which justifies the upgrade.

So to recap: only four upgrades were issued and only one out of these four led to a Buy rating.

Among the 24 downgrades Aurora was not the only stock where ratings were lowered by more than one broker, as Leighton Holdings ((LEI)), QBE Insurance ((QBE)) and Transfield Services ((TSE)) also received multiple downgrades.

Both Deutsche Bank and Macquarie Moved to Sell ratings on Leighton from Hold previously, this given further credibility issues arising from further write-downs to problem contracts. The other issues according to Deutsche is the potential for balance sheet issues and a weak medium-term growth outlook.

Valuation is the issue for QBE, as both Citi and JP Morgan have moved to Neutral ratings on the back of recent share price strength. The insurer's AGM this week showed earnings drivers for the company have turned more positive in recent months.

With respect to Transfield, the downgrades from JP Morgan, RBS Australia and Macquarie reflect concerns over problem contracts that go beyond April's profit warning.

Post management's revised guidance, earnings estimates and price targets for Transfield have been adjusted across the market.

Elsewhere, Macquarie downgraded Boral ((BLD)) to Neutral from Buy as earnings revisions meant a cut in price target, while UBS moved to neutral from Buy on CSL ((CSL)) on valuation grounds after factoring in some changes to forex assumptions.

The changes to forecasts that saw Deutsche upgrade Oz Minerals have also seen the broker downgrade Fortescue ((FMG)), Iluka ((ILU)), Paladin ((PDN)) and Sandfire ((SFR)), as revised earnings estimates have impacted on total return expectations.

While OrotonGroup ((ORL)) remains a retail favourite of Credit Suisse, the broker has downgraded to Neutral from Buy on valuation grounds. Primary Health Care ((PRY)) has similarly been downgraded by the broker on the same basis.

Valuation has also been behind RBS Australia downgrading Pharmaxis ((PXS)) to Hold from Buy, while JP Morgan has downgraded Qantas ((QAN)) to Neutral from Overweight given the in-house view consensus earnings estimates for the airline remain too high.

A stretched valuation and some concerns over domestic ad volumes have seen BA-ML downgrade Seek to Sell from Hold, while recent share price gains have been enough for Citi to downgrade Sonic Health ((SHL)) to Neutral from Buy.

The risk of earnings and sentiment downside from current levels has prompted UBS to move to a Neutral rating on Virgin Australia ((VAH)), while Macquarie has moved to a Sell rating on Westfield Group ((WDC)) from Neutral previously as the group's shopping mall property assets business re-positioning is expected to take some time.

Price target adjustments during the week have not resulted in any changes of more than 10%, while earnings adjustments during the period were most significant in terms of increases for Macquarie Bank ((MQG)) and James Hardie ((JHX)) and cuts for Alumina Ltd ((AWC)), Leighton and Bank of Queensland ((BOQ)). 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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