Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features TELSTRA GROUP LIMITED. For more info SHARE ANALYSIS: TLS

By Chris Shaw

Changes in broker ratings over the past week have returned to the recent trend of downgrades outnumbering upgrades, with the eight brokers in the FNArena database lifting just five ratings while cutting 11 recommendations in the period. Total Buy ratings now stand at 49.07%.

Alumina ((AWC)) was one to be upgraded, BA Merrill Lynch moving to a Neutral rating from Underweight while suggesting news Chinalco is to cut output will be a positive in terms of bringing the global aluminium market into better balance. Other positives for the stock in the broker's view are some improvements on costs and improved value following recent share price weakness.

Views on Alumina were not all positive however, as JP Morgan downgraded to Underweight from Neutral on the view the current tough aluminium market conditions mean there are a lack of positive catalysts to drive the share price shorter-term. The broker is also concerned margin pressure could see dividends cut.

While a review saw RBS Australia lower earnings forecasts and price target for Billabong ((BBG)), the view is new management should be able to run the business more appropriately going forward. As well, RBS sees good relative value in the stock following recent share price weakness and so has upgraded to a Buy rating from Hold.

UBS has upgraded DuluxGroup ((DLX)) to Buy from Hold following the pre-release of full year earnings from potential target Alesco ((ALS)). The Alesco result showed enough that UBS estimates a successful acquisition by Dulux would be around 7% earnings accretive, while recent share price moves have improved the value offering at current levels.

Following changes to oil price assumptions JP Morgan has adjusted its model for Woodside ((WPL)), the result being a modest increase in price target. With improved valuation support the broker has upgraded to an Overweight rating from Neutral previously.

The changes to JP Morgan's expectations were not positive across the sector, as both Aurora Oil and Gas ((AUT)) and Beach Energy ((BPT)) were downgraded to Underweight ratings from Neutral previously on the changes to earnings expectations and price targets stemming from revised oil price forecasts.

On the downgrades side of the ledger, Ten network ((TEN)) as the only stock to suffer multiple downgrades with both BA-ML and UBS cutting ratings to Sell from Hold. The changes follow the decision by Ten Network to raise capital for programming and to strengthen the balance sheet.

UBS suggests the stock is now expensive at current levels given a soft earnings outlook, while BA-ML's view is the attempt to copy Seven's ((SWM)) strategy isn't working and a return to being a low cost broadcaster would be appropriate. Targets and earnings for Ten Network were cut across the market on news of the capital raising.

While Alesco's pre-released earnings were reasonably well received recent share price moves have the stock trading in line with valuation for Deutsche Bank. As a result, rating is downgraded to Neutral from Buy.

Macquarie was also busy with downgrades during the week, cutting Echo Entertainment ((EGP)), Qantas ((QAN)) and Telecom New Zealand ((TEL)) to Neutral recommendations from previous Buy ratings.

For Echo, a trading update saw Macquarie revise earnings forecasts and price target down modestly. A takeover could see a valuation of around $5.00 but a this suggests somewhat limited upside the broker has downgraded to a Neutral rating.

Qantas also lowered earnings guidance and Macquarie cut its numbers and price target accordingly. While seeing value at current levels Macquarie also sees few catalysts to suggest a share price rebound shorter-term, so rating is downgraded.

Increased competition remains an issue for Telecom New Zealand in Macquarie's view, as is an apparent lack of clear growth drivers. With this in mind valuation is fair rather than attractive in the broker's view.

Macquarie also downgraded Stockland ((SGP)) but to Sell from Neutral, suggesting the stock is now over-valued given consensus earnings forecasts appear too high for the medium-term. A review of assumptions sees minor cuts to earnings estimates.

Telstra ((TLS)) shares have enjoyed a solid run in recent months and in RBS Australia's view this reflects greater comfort with respect to future cash flows. The share price gains have probably run their course according to the broker, who downgrades to a Hold from Buy on valuation grounds.

While there were only minor positive changes in price targets over the week targets for both Qantas and Ten Network saw significant cuts, the former given lower earnings guidance and the latter as brokers adjusted their models for a capital raising.

From an earnings forecast perspective Whitehaven ((WHC)) and Goodman Group ((GMG)) saw brokers lift their expectations significantly, while Qantas, Ten and Echo were the stocks with the largest cuts in earnings estimates during the week.

 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

 

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