Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features ARISTOCRAT LEISURE LIMITED, and other companies. For more info SHARE ANALYSIS: ALL

By Andrew Nelson

Last week was a big week for downgrades. As of Friday, the FNArena Database scoreboard was showing a whopping 19 downgrades versus just four upgrades over the course of the week. However we can add a little perspective to the downgrade ledger, as six of the downgrades recorded all belonged to one unlucky company, Bank of Queensland ((BOQ)).

Early last week the company came out and advised that bad debts are going to come in about 20% higher than the market was expecting. The bank ended up downgrading its FY guidance and increasing its bad debt provisions by a further $15m. Brokers reacted by cutting forecasts and downgrading their recommendations for the most part. Well, all except two. Still, what was a stock that rated six Buys in the FNArena Database last Monday is now left with just one.

Macquarie is the last man standing with a Buy call on Bank of Queensland, believing the sell-off in BOQ and across the board downgrades were overdone. The broker notes the market took away 40c per share when the downgrade and top up were really only worth 4c per share, in its view. JP Morgan also bucked the trend, actually upgrading its recommendation to Neutral from Underweight on a view that while concerning, the lowered profit wasn’t that bad, while the topped up debt provisions has more evenly balanced risks. By the end of last week the stock was Neutrally regarded in the FNArena Database, with one Buy, one Sell and six Holds.

BA-Merrill Lynch downgraded Aristocrat Leisure ((ALL)) to Sell from Neutral, claiming the market was underestimating the force of the headwinds facing the company. The headwinds were cited as being persistent US pricing pressure and increasing competition in the company’s home market, Australia. Interestingly, just a few days before, Deutsche Bank upgraded its recommendation on ALL to Buy, noting strong earnings growth, a sound balance sheet and positive momentum in all of the company’s key markets. The stock garners slight positive regard in the FNArena Database, with three Buys, two Sells now and three Holds.

Boral ((BLD)) was clipped to Sell from Neutral by UBS last week after the broker pushed out its timing for a turn in the Australian construction cycle to early 2014. BA-Merrill Lynch made the same move about three weeks ago, while Citi, already at Sell, made similar comments two days before Merrills. The stock is now a mid level Sell in the FNArena Database, with just two Buys trying to face down four Sells and two Holds.

Next on the downgrade ledger is BT Investment Management ((BTT)), which reported September quarter numbers last week. Both UBS and JP Morgan were fairly positive on the release and upgraded fund flow forecasts, but Credit Suisse, on the other hand, was a little less impressed than the other two. CS moved to trim its forecasts on fund flow levels that were weaker than expected, while also cutting its recommendation to Neutral from Outperform given recent strength in the share price. As of Friday, shares were trading at just a 3.3% discount to the consensus price target in the FNArena Database. The stock is Neutrally regarded, with four Hold calls recorded.

UBS downgraded Coca Cola Amatil ((CCL)) to Sell on valuation grounds, noting that while the company seems to be performing quite well, the share price is simply too high to support forecast earnings growth. The stock is a little on the negative side of being Neutrally regarded, with two Buys trying to fend off three Holds and three Sells. The Holds and Sells are all of a fairly similar opinion, great company, too expensive. A fact demonstrated by shares trading at a 3.5% premium to the FNArena consensus price target.

JP Morgan has become the latest in line to downgrade its view on CSR ((CSR)). The broker has cut its call to Neutral from Buy, citing continuing low aluminium prices and weakness in domestic construction. Citi downgraded to Sell last month, UBS dropped to Hold in August and Credit Suisse to Sell in July, all of them on similar grounds. The stock now rates just one Buy, four Holds and three Sells in the FNArena Database.

Fleetwod Corp. ((FWD)) was lowered to Hold from Buy by RBS, with the broker worried about occupancy rates in general and occupancy rates at Searipple in particular. The stock still enjoys three Buys versus just one Sell and one Hold in the FNArena Database. James Hardie ((JHX)) also suffered at the hands of RBS, the broker cutting its recommendation to Sell from Neutral after pushing out its expectation of a recovery in the construction cycle. The stock is now negatively regarded in the FNArena Database, with three Sells out trumping three Holds and one Buy.

Both Macquarie and Deutsche Bank cut their calls on Lynas Corp. ((LYC)) to Sell last week, with Macca’s actually cutting down from a Buy call. The company is beset by court problems in Malaysia that have seen LAMP processing delayed yet again. While both brokers are confident of an ultimately positive resolution, both are also concerned about the impact all of these delays are having on the balance sheet. The stock is now negatively regarded on the FNArena Database, with two Sells trumping two Neutrals and on Buy. It’s worth noting that the shares currently offer 43.7% upside to the consensus target, so probably worth watching when/if these Malaysian legal issues are solved.

UBS came off of Restriction on Nufarm ((NUF)) and promptly cut to Hold, seeing limited valuation upside over the near-term. Meanwhile, RBS downgraded Washington H Soul Pattinson ((SOL)) to Hold on valuation grounds, otherwise liking the diversified market exposure and focus on dividends that are offered.

Citi dropped Orica ((ORI)) to Neutral , concerned that a new wave of competition has eroded the company's traditional first mover advantage and believing this will limit earnings growth going forward. Most brokers disagree, with the stock still rating six Buys, one Hold and the one Sell in the FNArena database. Meanwhile, Worley Parsons ((WOR)) was cut to Sell by Deutsche Bank, the broker thinking the time of high hydrocarbon earnings growth for the company are over. The stock now rates a flat Neutral in the FNArena Database.

Lastly, JP Morgan downgraded Westpac ((WBC)) to Sell, not liking the direction the bank’s return on equity levels are travelling. The broker thinks it’s time for some backbone and suggests the bank should think twice about continually increasing dividends. One Buy, one Sell and Six Holds leave the stock at flat Neutral in the FNArena Database.

The upside is a little less populous than the downside this week, with the two upgrades already mentioned (BOQ and ALL) only leaving us two more to discuss. RBS upgraded both Retail Food Group ((RFG)) and Seven Group ((SVW)) to Buy, albeit for different reasons. RFG was boosted because not only did the broker like the Crust Pizza acquisition, but it is also increasingly positive on the longer term growth dynamics on offer. Seven was lifted not so much because the broker liked the company’s move to drop the Consolidated Media ((CMJ)) acquisition on ACCC issues, but more because of the company’s subsequent move to sell its CMJ stake at a decent price to News Corp ((NWS)). RBS thought it was a brilliant move, noting the company will pocket about $475m in November and also benefit from a much simpler corporate structure. Both stocks are Positively regarded in the FNArena Database, each boasting straight Buys with the exception of one Hold each.

There wasn’t much to note in the way of major upward moves to consensus target prices, with Aristocrat the only shares booking better than a 1% increase. The downside shows us a different story, with FKP Property’s ((FKP)) average target down 11.6%. BA-Merrill Lynch downgraded the stock to Sell a week prior, noting a significant amount of built up inventory.

Lynas Corp’s target was down 11.3% on the week based on the issues mentioned above, while Fleetwood dropped 3.38%, also mentioned above. Rio Tinto ((RIO)) also makes the last paragraph of the report, its consensus target price slipping 3.24% on the back of a few commodity price revisions. Otherwise, the stock still rates eight straight Buys in the FNArena Database.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=110,91,99,91,77,125,142,112&h0=76,114,96,130,96,103,150,128&s0=54,28,37,11,45,38,13,18″ style=”border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid” />

Click to view our Glossary of Financial Terms