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

In a reversal of the dominant trend of recent weeks, upgrades to broker ratings outweighed downgrades by a total of nine to six over the past week. Total Buy ratings according to the eight brokers in the FNArena database now stand at 49.28%.

Among the upgrades was AGL Energy ((AGK)), where Citi moved to a Buy rating from Neutral as part of a resumption of coverage following the Loy Yang A acquisition. The deal is earnings accretive, adds more energy to AGL's portfolio and reduces supply risk, all of which are positives in the broker's view.

Citi also upgraded Centro Retail ((CRF)) to Buy from Neutral, reflecting not only recent relative underperformance but some company specific positives. These include the settlement of class action litigation and solid asset sale results and imply the stock now offers better value and a less risky proposition.

A solid full year earnings result from Programmed Maintenance Services ((PRG)) was enough for Citi to upgrade to a Buy recommendation from Neutral, they key to the more positive view being greater stability in earnings following restructuring efforts over the past few years. There is also value on offer according to Citi given an attractive earnings multiple and dividend yield.

Improved valuation was behind Citi's decision to upgrade Sigma Pharmaceutical ((SIP)) to Buy from Hold. Over the past month Sigma shares are down around 12%, enough in Citi's view to make the stock look relatively attractive again. 

For similar reasons JP Morgan has upgraded Ausenco ((AAX)) to Overweight from Neutral, the broker noting the stock has lost around 20% over the past month to the point where the shares now offer "compelling value".

JP Morgan also upgraded ANZ Banking Group ((ANZ)) to Neutral from Underweight, this to reflect recent relative price moves among the major banks. While the sector is likely to struggle from a lack of credit growth in the medium-term, the broker has lifted its ANZ rating while downgrading National Australia Bank ((NAB)) to Underweight from Neutral on respective share price changes.

JP Morgan's earnings estimates and price targets have been adjusted across the banking sector, while Macquarie has upgraded Suncorp Group ((SUN)) to Neutral from Sell. This reflects improved valuation from recent share price weakness, while the broker also sees potential longer-term benefits from further cost efficiencies.

On news of the sale of its Technology Solutions business CSG ((CSV)) has been upgraded to Hold from Sell by RBS Australia. The sale is viewed positively as it allows for better focus on the remainder of CSG's operations, while also opens up the potential for a special dividend to shareholders. Price target was also lifted on the news.

The attraction of Monadelphous ((MND)) for Deutsche Bank is the group's level of contract sales and exposure to projects unlikely to be deferred, which in the broker's view means the stock is being undervalue at current levels. Given a solid earnings growth outlook, Deutsche moves to a Buy from Hold previously, this despite a trimming in price target.

Turning to the downgrades and RBS Australia has cut its rating on Acrux ((ACR)) to Hold from Buy on valuation grounds as the stock has gained 25% since the broker's last report. Echo Entertainment ((EGP)) was also downgraded to Neutral from Overweight by JP Morgan, this given a trading update implied a tougher outlook for some of the group's casino operations. While forecasts and price targets have been lowered, JP Morgan continues to see some downside risk to earnings.

Transurban ((TCL)) has been downgraded to Hold from Buy by BA Merrill Lynch, this given the valuation impact of the pushing back of the M2 completion date, a toll freeze on the same road and softer than expected traffic numbers. Supporting the downgrade in BA-ML's view is the stock is very yield sensitive, the changes to its model generating a slight cut in dividend expectations.

The only stock to be downgraded by two brokers this week was Sims Group ((SGM)), both Macquarie and BA-ML moving to Sell ratings from Buy previously. The changes come after a trading update included weak earnings guidance, both brokers suggesting in the currently difficult trading environment share price outperformance for Sims is unlikely.

The trading update saw Sims top the list in terms of the largest cuts to broker price targets, while Programmed Maintenance enjoyed the largest increase in price targets following what was a well received profit result.

The database shows some solid positive revisions to earnings estimates for Alesco ((ALS)), while Sims, Echo Entertainment and Lynas Corporation ((LYC)) saw the largest cuts to forecasts. The changes for Lynas reflect uncertainty with respect to the granting of a temporary operating licence for its LAMP plus falling rare earth prices. 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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