Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features ARISTOCRAT LEISURE LIMITED, and other companies.
For more info SHARE ANALYSIS: ALL
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Andrew Nelson

Last week may have been a short one, but it didn’t stop brokers from making a few changes to their stock recommendations. It was definitely an upgrade week, with eleven recommendations lifted and just one downgrade pushed through.

That one downgrade was on Envestra ((ENV)), with Macquarie dropping its call to Sell from Neutral on the view the stock is growing increasingly unappealing on several fronts. The broker noted the company is hampered by an outsourced operating structure, which traditionally receives a discount. Unlike DUET ((DUE)), which Macquarie also thinks is fully priced, the two major shareholders in ENV hinder a potential takeover offer. The yield is also the lowest of the sector and there is a dividend reinvestment plan with a 4% discount in which the major shareholders are participating. The FNArena Database shows the stock maintains a negative sentiment.

The other side of the ledger leads off with Aristocrat Leisure ((ALL)) on an upgrade to Hold from Sell by Credit Suisse. The broker noted the company's next stage of development is aimed at the internet business. The broker finds it is too early to value the on-line segment and ascribes it only optional potential. Aristocrat will also roll out its new operating system in 12-18 months. Although this new system has key differences, the broker noted such roll outs have been tumultuous for investors in the past. Sentiment for the stock is positive.

Atlas Iron ((AGO)) was lifted to Hold from Sell by Macquarie on valuation grounds, believing the Underperform rating has run its course and the stock is more attractive now. The iron ore price appears to have stabilised at around US$135/tonne and the broker does not expect much in the way of supply additions in the first half. Macquarie believes the iron ore price is around a fair level for the current half-year given the outlook for Chinese steel production. Sentiment for the stock is positive.

Aurora Oil & Gas ((AUT)) was upgraded to Hold from Sell by Citi. The FY production guidance was largely in line with Citi’s expectations, although it seemed to have disappointed the market given the share price reaction. The lower share price was just the thing the broker wanted to see and gave it cause to upgrade its call. Sentiment is positive.

CIMB bumped up Boart Longyear ((BLY)) to Buy from Hold, the broker noting the company has undertaken some serious cost cutting, which should deliver results in FY13 similar to FY12. While the environment is still fragile, the broker believes it can turn around quickly. Moreover, many investors are expecting a much worse profit outcome in FY13. On this basis a flat outcome could surprise and drive the share price higher, thus an opportunistic stance on the stock adds up to an upgrade. Overall sentiment for Boart Longyear is negative.

Downer EDI ((DOW)) also found its way to Buy from Hold, JP Morgan saying last week it thinks the company has done a good job in stabilising the business and with things running much smoother, management now has the time to deal with end markets and come up with some plans to address current challenges. While the share price may well factor in all of the downside risks associated with the near term outlook, the broker thinks the benefits of recent improvements and the company's competitive advantages are being ignored. This view is what drove the upgrade. Broker sentiment for the stock is very positive.

Iluka ((ILU)) was lifted to Hold from Sell by CIMB on the back of a 10% drop in the share price since results were reported in February. The broker otherwise thinks that despite industry wide production cuts, we’ll still be seeing less demand and fewer new projects, which will limit upside for prices. The broker noted a nominal zircon demand-supply deficit in 2013 could easily be filled by inventories, while nominal surpluses in 2014 will require a pickup in demand to keep prices firm. The broker is at least more positive on the titanium dioxide outlook. Sentiment for the stock is positive.

JP Morgan upgraded Nufarm ((NUF)) to Buy from Hold as a result of the significant fall in the share price last week. Despite the guidance downgrade, the broker thinks the market reaction was overdone. Increased competition may be coming, but the downgrade was largely due to seasonal conditions, a near-term consideration. The broker believes management is downplaying the longer-term impact of Sinochem entering the Australian market but does not view this as an issue for FY13 and FY14. The upgrade has brought the sentiment read up to neutral.

Regis Resources ((RRL)) was lifted up to Buy from Hold by Citi and UBS. Citi noted that earnings missed again in the the third quarter, with production and guidance from Garden Well the big disappointment. Yet despite the poor showing from Garden Well, the broker thinks the other assets are doing just fine and present a nice organic growth story, with a return to more predictable delivery just around the corner. March quarter production also fell short of UBS, who notes the stock is trading on undemanding multiples, with visible catalysts like an update on Garden Well this quarter and commissioning of Rosemont and an initial reserve at McPhillamys in the third quarter. Both will likely to help the price. Sentiment for the stock remains positive.

CIMB upgraded Toll Holdings ((TOL)) to Hold from Sell noting that if the latest retail sales data is an indication that spending is trending higher, then this is a good sign for Toll’s Australian businesses. While the volume increase would be good for transport, the broker continues to think earnings pressure will come in the form of margin compression and better volume growth will not offset cost inflation. But given the stock has pulled back to trade near the broker's target, the recommendation was raised. Sentiment for the stock is negative despite the upgrade.

Worley Parsons ((WOR)) made it up to Buy from Hold thanks to Credit Suisse, who citied recent share price weakness combined with improving confidence in the company's outlook. Sentiment for the stock is positive.

It was quiet week as far as consensus price targets go, with no moves made in excess out our normal cut off of +/- 5%. The biggest change was posted by Prime Media ((PRT)), its consensus price target ending the week 4.7% lower.

There was a fair bit more in terms of consensus recommendation changes, with consensus earnings for CSR ((CSR)) up over 74%, James Hardie found its way almost 34% higher, Fairfax forecasts were up 26.8%, Macquarie Group ((MQG)) lifted 25.8%, SingTel’ s ((SGT)) averaged earnings were up 18.4%, while Programmed Maintenance Services ((PRG)) lagged the pack, it’s forecasts up a lesser 6.3%.

There was a bit of life on the forecast downgrade side as well. Average earnings for BlueScope ((BSL)) were cut by more than 57%, Newcrest’s numbers were down more than 20%, Aurora Oil & Gas ((AUT)) saw their earnings trimmed by 11.3%, while Beadell Resources ((BDR)) found their earnings forecasts 7.75% lighter by the end of the week.

Note: FNArena monitors eight leading stockbrokers on a daily basis and the tables below are based on data analysis from the week past concerning these eight equity market experts. The eight experts in casu are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, CIMB (formerly RBS) and UBS.
 

Total Recommendations	Recommendation Changes
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