Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features WESTPAC BANKING CORPORATION, and other companies. For more info SHARE ANALYSIS: WBC

By Chris Shaw

The past week has been a quieter one for changes in company ratings, as the eight brokers in the FNArena database made just six upgrades and nine downgrades in recommendations. Total Buy ratings now stand at 43.32%.

Among the upgrades was Alumina ((AWC)), where BA Merrill Lynch moved to a Buy rating from Hold given signs a squeeze in the bauxite market was occurring as China was importing more alumina given limited bauxite availability. While a Supreme Court ruling in Indonesia later in the week set aside the government decision to ban exports and created some additional uncertainty, BA-ML continues to see valuation upside for the stock.

Discretionary retail stocks were also a focus for brokers, as Billabong ((BBG)), Myer Holdings ((MYR)) and Specialty Fashion ((SFH)) all saw ratings upgraded over the week. Citi moved to a Buy from Hold on Billabong given the view sales trends are starting to stabilise and discounting across fashion categories is reducing, which was enough for the broker to lift earnings estimates and price target along with its rating.

For Myer, Citi also moved to Buy from Hold given the view conditions in the sector are improving. The broker also lifted earnings estimates and its price target for Billabong, which support the upgraded rating.

Credit Suisse upgraded Specialty Fashion to Hold from Sell given both an undemanding valuation and evidence of some improvement in operating conditions. Changes to forecasts prompted a significant increase in the broker's price target.

While a trading update from Domino's Pizza ((DMP)) was a little softer than expected ,JP Morgan notes full year guidance was maintained, meaning no changes to earnings estimates. To reflect recent share price weakness the broker upgraded to Buy from Hold given an opportunity for investors at current levels.

Westpac ((WBC)) delivered what was regarded as the best of the major bank profit results and this prompted Citi to upgrade to Buy from Hold on the stock. Improving revenue performance and changes to interest rate assumptions drove an increase in price target, which supports the upgrade in rating.

At the same time Credit Suisse went the other way and downgraded Westpac to Hold from Buy, this was a valuation call as post the profit result the broker made only minor changes to earnings estimates and none to its price target.

Credit Suisse also downgraded Australand Property ((ALZ)) on valuation grounds to Hold from Buy given recent share price outperformance. The broker suggests the stock has performed well given improvements made in earnings quality and capital position.

Elsewhere in the property sector, both BA-ML and UBS downgraded Charter Hall Group ((CHC)) to Hold from Buy. For UBS the change comes after the broker adjusted its model for new assumptions to reflect an announced joint venture to acquire Bunnings assets, while for BA-ML the downgrade is a valuation call given strong returns from the company in recent months.

Having reviewed its uranium price assumptions, JP Morgan has downgraded both Energy Resources of Australia ((ERA)) and Paladin Energy ((PDN)), the former to Sell from Hold and the latter to Hold from Buy. The changes reflect weaker uranium price assumptions from the decision by Japan to delay the re-start of some of its nuclear reactions.

JP Morgan also cut its rating on Retail Food Group ((RFG)) to Sell from Hold given the view the core franchise systems of the group are struggling to achieve positive weekly sales growth. With organic growth more difficult, executing on acquisitions becomes a key but brings with it additional risk in the broker's view. 

QR National ((QRN)) has been downgraded on valuation grounds by Deutsche Bank to Hold from Buy following a gain in the share price of around 17% since July. Supporting the change in rating is the potential for uncertainty with respect to coal volume growth and contract volumes to impact on earnings going forward.

There were no major changes to broker price targets over the week, the largest increases coming in at just over 5.0% for both Henderson Group ((HGG)) and Alumina. The largest decease was in Tap Oil ((TAP)) and was just over 6.0%.

Increases to earnings forecasts were similarly modest, no stock under coverage enjoying an increase of more than 10%. Cuts to earnings estimates were more significant, with Beadell Resources ((BDR)), St Barbara ((SBM)), Boral ((BLD)) and Whitehaven Coal ((WHC)) all seeing earnings forecasts cut by at least 10%.

 

Total Recommendations	Recommendation Changes
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