Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

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By Chris Shaw

Downgrades to ratings by the eight brokers in the FNArena database continue to outweigh upgrades, to the tune of 12 reductions in ratings over the past week compared to eight increases. Total Buy ratings now stand at 44.79%.

Among the upgrades the one stock to see more than one increase in rating was Fortescue Metals ((FMG)), where both UBS and RBS Australia upgraded to Buy ratings from Neutral previously. As RBS notes, the securing of a new debt facility by Fortescue removes short-term funding issues, enough to justify a more positive rating in the broker's view.

Also upgraded during the week was Acrux ((ACR)), RBS suggesting there is now reasonable value in the stock at current levels following share price weakness after a profit downgrade announced in August. RBS has moved to a Buy rating from Hold previously.

RBS also upgraded Mortgage Choice ((MOC)), the move to a Buy rating from Hold following a change in analyst covering the stock. The change has generated adjustments in price target and earnings estimates, while the broker also sees longer-term upside potential from recent acquisitions. An added attraction is Mortgage Choice offers an attractive fully franked dividend yield.

Citi upgraded AGL Energy ((AGK)) during the week to Buy from Hold as the broker sees upside from the optionality in electricity retailing in New South Wales the company has developed in recent years. The upgrade has no impact on Citi's earnings estimates or price target.

Both Graincorp ((GNC)) and Iluka ((ILU)) were upgraded to Outperform from Neutral by JP Morgan, the former on valuation grounds as the share price fall of more than 10% since the recent edible oil assets acquisition was announced is excessive in the broker's view.

For Iluka, JP Morgan expects higher zircon prices will continue until at least 2015, which supports a solid earnings outlook for the company. Also positive is Iluka has a strong balance sheet, good management and unique assets.

At the same time Macquarie has downgraded Iluka to Neutral from Outperform, as recent share price gains suggest limited valuation upside from current levels. Changes to commodity price forecasts resulted in Macquarie lifting its price target modestly.

Westfield Retail Trust ((WRT)) was upgraded by UBS to Buy from Hold on valuation grounds as the stock has underperformed in relative terms against the A-REIT index in recent weeks. UBS makes no changes to earnings forecasts or price target.

On the downgrade side of the ledger Macmahon Holdings ((MAH)) was downgraded by three brokers, RBS and Macquarie moving to Hold from Buy and UBS to Sell from Buy following a profit warning from the company.

Earnings estimates and price targets for Macmahon have been cut on the back of the update, Macquarie suggesting a more cautious view on the company is now justified as the market will want some evidence with respect to the consistency of earnings before any re-rating occurs. UBS also sees an uncertain earnings outlook and suggests this risk is reason enough to exit the stock.

James Hardie ((JHX)) has also been downgraded by two brokers, BA Merrill Lynch moving to a Neutral rating from Buy and UBS to Sell from Neutral. For UBS the issue is value as the stock is viewed as simply too expensive at current levels, while BA-ML moves to a more cautious view as the current share price leaves little wriggle room for any earnings disappointment relative to expectations.

Among iron ore plays, both Atlas Iron ((AGO)) and Grange Resources ((GRR)) have been downgraded by Macquarie, this following revisions to the broker's commodity price forecasts. In the case of both, recent share price gains add weight to the downgrades. Price targets and earnings estimates were revised lower in both cases.

CSR ((CSR)) saw a downgrade from Citi to Sell from Hold, this reflecting the view non-residential and engineering work is likely to reduce in coming years, which will impact on earnings for CSR that are already under pressure from weak residential construction activity.

For Sydney Airport ((SYD)), BA-ML has downgraded to a Sell rating from Neutral during the week. Even some solid traffic numbers for August and expectations this trend will continue are not enough to be more positive as the good news is already priced into the stock in the broker's view.

RBS has downgraded TPG Telecom ((TPM)) to Sell from Hold as while full year earnings for FY12 were solid the earnings growth outlook for the stock is simply not good enough in the broker's view to justify the stock's current premium to the sector.

For Wotif.com ((WTF)), UBS has moved to a Neutral rating from Buy on news the CEO has resigned. This creates uncertainty in the broker's view, which limits the scope for any share price outperformance in the shorter-term.

With respect to price targets, only TPG Telecom saw its price target increase by more than 10% during the week as models were adjusted for a solid full year profit result. Macmahon experienced a cut to consensus price target of more than 50% following its downgrade to earnings guidance, while targets for Aquarius Platinum ((AQP)) were cut nearly 12%.

No stocks saw significant increases to consensus earnings estimates during the week, while Panoramic Resources ((PAN)), Macmahon, Ten Network ((TEN)) and Oil Search ((OSH)) saw forecasts cut by more than 10%. In the case of both Panoramic and Macmahon the cuts to estimates were far more significant at more than 90% and more than 50% respectively.  
 

Total Recommendations	Recommendation Changes
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