Weekly Recommendation, Target Price, Earnings Forecast Changes

Array
(
    [0] => Array
        (
            [0] => ((TEN))
            [1] => ((CPA))
            [2] => ((CBA))
            [3] => ((IOF))
            [4] => ((CPU))
            [5] => ((NVT))
            [6] => ((NCM))
            [7] => ((ORL))
            [8] => ((PRU))
            [9] => ((PMV))
            [10] => ((QBE))
            [11] => ((SEK))
            [12] => ((TAH))
            [13] => ((WSA))
            [14] => ((WPL))
            [15] => ((ANN))
            [16] => ((AGO))
            [17] => ((FMG))
            [18] => ((ANZ))
            [19] => ((BLD))
            [20] => ((CGF))
            [21] => ((COH))
            [22] => ((FMG))
            [23] => ((ILU))
            [24] => ((IPL))
            [25] => ((ORI))
            [26] => ((OZL))
            [27] => ((TEN))
            [28] => ((TPI))
        )

    [1] => Array
        (
            [0] => TEN
            [1] => CPA
            [2] => CBA
            [3] => IOF
            [4] => CPU
            [5] => NVT
            [6] => NCM
            [7] => ORL
            [8] => PRU
            [9] => PMV
            [10] => QBE
            [11] => SEK
            [12] => TAH
            [13] => WSA
            [14] => WPL
            [15] => ANN
            [16] => AGO
            [17] => FMG
            [18] => ANZ
            [19] => BLD
            [20] => CGF
            [21] => COH
            [22] => FMG
            [23] => ILU
            [24] => IPL
            [25] => ORI
            [26] => OZL
            [27] => TEN
            [28] => TPI
        )

)

This story features COMMONWEALTH BANK OF AUSTRALIA, and other companies.
For more info SHARE ANALYSIS: CBA
The company is included in ASX20, ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday October 14 to Friday October 18, 2013
Total Upgrades: 12
Total Downgrades: 17
Net Ratings Breakdown: Buy 36.95%; Hold 43.73%; Sell 19.32%

Broker downgrades continue to outnumber upgrades and that shouldn't surprise given the share market's ongoing positive momentum. For the week past, FNArena recorded 17 downgrades in ratings for individual stocks and 12 upgrades.

There's no underlying theme, other than that share prices are starting to look fully valued, and then only on some analysts' calculations as downgrades for the likes of Woodside Petroleum and Fortescue Metals merely reflect how divided experts are on the earnings outlook and valuations for these cyclical companies.

Resources stocks dominate changes in earnings forecasts, both on the negative and on the positive side. But it is Ten Network ((TEN)) that trumped everybody else in terms of falling expectations last week. Fortescue was the week's stand-out on the positive side, sitting on top of the tables for positive revisions in price targets and in earnings estimates. Fortescue also received one downgrade in rating, while Macquarie is currently restricted, but there are still plenty of others who remain positive on the shares.

Upgrades

Commonwealth Property Office ((CPA)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 0/6/0

Dexus has combined with CPPIB to make a bid for Commonwealth Property. The bid represents a 4% discount to net asset value, the broker calculates, and involves a partial cash, partial Dexus scrip-swap offer. While the deal offers an exit for Commonwealth Bank ((CBA)), the broker believes it is likely to accelerate CPA's own plans to internalise management of the fund. Dexus may then sweeten the price or hope a re-rating of its own shares will do so automatically on the scrip-swap element. The broker has upgraded to Neutral but, despite the takeover potential, sees better value in holding Dexus or Investa Office ((IOF)). 

Computershare ((CPU)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 3/4/1

The broker has raised its target for Computershare to $11.50 from $10.50 after applying a lower AUD expectation in later years. The share price is reflecting the subdued environment for stock market activity, M&A and interest rates, and downside risk is now limited. Hence, the price represents an attractive entry point, the broker suggests.

Navitas ((NVT)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 2/3/2

Navitas is entering a growth phase in the US as the business finally gains traction. Deutsche Bank sees opportunities for US universities to increase market share of international students. As Navitas is a leader in US UPP, significant upside to valuation will come from success in this market. University Pathway Programs represent less than 1% of the international student intake as opposed to 8% in the UK and 15% in Australia and the model is gaining wider acceptance, in the broker's view.

Newcrest Mining ((NCM)) upgraded to Outperform from Neutral by CIMB Securities. B/H/S: 1/5/2

Newcrest had a good start to FY14, with gold production of 586,600 ounces in the September quarter. CIMB believes there is increased value in the stock and has upgraded to Outperform from Neutral. While the balance sheet appears stretched, a 20% discount to valuation to account for the risks produces a $13.50 price target, reduced from $13.60. FY14 earnings estimates are reduced by 38% following the September quarter numbers, with $120m of increased tax expenses because of the reversal of prior claims.

OrotonGroup ((ORL)) upgraded to Neutral from Sell by Citi. B/H/S: 0/2/2

The broker is forecasting a period of flat rental growth for retail which should allow for a fall in Oroton's rent-to-sale ratio. Forecast earnings rise 4% across the period. Oroton's share price has now fallen to the broker's target, prompting an upgrade to Neutral. The broker warns competition is still the company's biggest threat, but upside is possible from spending excess cash on an acquisition.

Perseus Mining ((PRU)) upgraded to Outperform from Neutral by CIMB Securities. B/H/S: 4/3/0

The revised mine plan for Edikan has been released, prioritising profitability over additional ounces. CIMB has upgraded the rating to Outperform from Neutral because of the greater clarity on the long-term outlook. The FY14-15 earnings forecasts have been increased because of higher grades and lower strip ratios. The 20% premium to valuation has been removed from the target price and this decreases to 71c from 74c. Perseus has cut overall gold in reserves by 6%. The new plan anticipates average production levels of 230,000 ounces over FY14-24 at an all-in site cash cost of US$937/oz.

Premier Investments ((PMV)) upgraded to Neutral from Sell by Citi. B/H/S: 2/3/1

The broker is forecasting a period of flat rental growth for retail which should allow for a fall in Premier's rent-to-sale ratio. The broker has thus lifted FY14 forecast earnings by 3%. Competition in casual wear remains the issue for PMV, the broker warns, offsetting gains from the Smiggles expansion. The weaker price nevertheless allows the broker to upgrade to Neutral, with $7.60 target retained.

QBE Insurance ((QBE)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 3/4/1

QBE has risen a net 30% year to date but this includes a more recent 15% pull back, the broker notes. The pull back represents deteriorating macro factors but the insurance environment remains favourable, the broker believes, and margins should continue to improve. With the stock now trading 20% below the broker's $17.25 target, an upgrade to Outperform follows.

SEEK ((SEK)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 2/1/5

The broker has conducted a detailed review of Seek's operating outlook. The conclusion is that Seek's domestic business remains a good structural story on yield if not on volume and leverage to any pick-up in the local employment market offers upside. In the international business, the broker sees a company well positioned for further growth. Seek is looking at a number of potentially positive catalysts over the next twelve months and the broker has upgraded to Outperform, lifting its target to $13.60 from $10.00.

Tabcorp ((TAH)) upgraded to Buy from Hold by Deutsche Bank. B/H/S: 4/2/2

After the investor briefing, Deutsche Bank believes Tabcorp is executing well in a competitive environment and expects compound annual earnings growth of 10% over the next three years. The Australian wagering market is growing and Tabcorp is seen holding its own. The rating is upgraded to Buy from Hold and the price target is raised to $3.65 from $3.30.

Westerm Areas ((WSA)) upgraded to Hold from Sell by Deutsche Bank. B/H/S: 2/4/1

Western Areas continues to perform strongly, witnessed by the latest production report, but Deutsche Bank analysts point out cash flow generation remains challenging. On their projection, the company has two convertibles due over the next 24 months -$110m in July, 2014 and $125m in July, 2015- and cash flows should be sufficient to satisfy, but it'll still be a challenge at present spot price for nickel (which is too low). The rating has been upgraded to Hold from Sell on valuation, while the target has gained 5c to $2.80. If nickel doesn't rise in price, the company might be looking at restructuring its debt, suggest the analysts.

Woodside Petroleum ((WPL)) upgraded to Buy from Neutral by Citi. B/H/S: 2/3/2

Revenue in the September quarter was slightly below Citi's estimates and 2013 profit expectations have been downgraded by 1% because of the slight delay to the re-start of Vincent. Citi expects 2014 profit of US$2.55 billion, and is 14% above consensus. The risked discounted cash flow valuation has increased 3.6% and the broker now includes an 80% risk weighting for Browse FLNG. Citi's analysis suggests the 80% pay-out ratio is sustainable throughout the execution of Browse FLNG, absent a parallel investment in Sunrise/Leviathan LNG.

Downgrades

Ansell ((ANN)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 0/5/3

Ansell failed to get a rise at the AGM, noting slower than expected first quarter sales. A weak Europe was blamed, as well as slower emerging markets. The broker believes Ansell should be an attractive investment proposition given what it sells, but we'll need to see a return to growth in these troubled centres before full value can be realised. Target falls to $20.90 from $21.55. Downgrade to Neutral.

Atlas Iron ((AGO)) downgraded to Sell from Neutral by Citi. B/H/S: 2/4/2

September quarter production, shipments and realised prices were well and good but, while Citi remains bullish on iron ore, the broker highlights the challenges ahead such as accessing rail and funding for the next stage. Fortescue ((FMG)) is the likely rail provider but Citi wonders about the access charge. After the recent share price appreciation the recommendation has been downgraded to Sell from Neutral and the target price is held at 90c.

ANZ Bank ((ANZ)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 4/2/2

The broker has elected to cut forecast earnings for ANZ by 3.5% in FY14-15 and thus its target to $33.48 from $36.02. While the broker believes the bank's Asia growth strategy is a sound one longer term, margins will be under pressure in FY14 due to forex sensitivity and a mix-shift into lower margin products, the broker suggests. Investors would be better served waiting for this adjustment to wash through, hence the broker has pulled back to Neutral for now.

Boral ((BLD)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 2/1/5

Boral has entered into a plasterboard joint venture with USG Corp. The broker suggests Boral now has the chance to leverage off USG's intellectual property and grow its Australia/Asia market share. Boral is the beneficiary of improvement in the local and US building scene, but things are improving slower than hoped, the broker notes. Yet the market is already pricing in a solid recovery. Thus despite the good news regarding the JV, the broker has elected to downgrade to Underperform. Target rises to $5.00 from $4.60.

Challenger ((CGF)) downgraded to Underweight from Neutral by JP Morgan, to Neutral from Outperform by Macquarie and to Neutral from Buy by UBS. B/H/S: 3/3/2

The first quarter may have appeared strong but JP Morgan points to higher-than-usual maturing of annuities in FY14. This should slow growth in the remainder of the year. Moreover, FY14 growth guidance appears achievable but the broker does not think it is conservative, as was implied by the market reaction. The share price is now above valuation and the rating is downgraded to Underweight from Neutral. Challenger is kicking goals according to Macquarie, with the company reporting quarterly numbers suggesting 30% lifetime sales growth, quarter on quarter, and 33% year on year annuity growth. The broker nevertheless has a problem with the level of transparency around credit risk, and has downgraded to Neutral. The first quarter update reinforced the company's growth trajectory, according to UBS. Retail annuity sales were up 48% on the prior corresponding quarter and came from the ramping up of Lifetime sales and growth in fixed term annuities. UBS thinks the stock is now fair value and the rating is downgraded to Neutral from Buy.

Cochlear ((COH)) downgraded to Underperform from Neutral by JP Morgan. B/H/S: 0/1/7

Cochlear's guidance at the AGM did not meet the broker's expectations. JP Morgan had been concerned about the impact of competition for some time but was giving the N6 the benefit of the doubt in its ability to claw back some share. As the risk to the downside remains with respect to forecasts amid increasing competition the broker has downgraded to Underweight from Neutral. The price target is reduced to $55.49 from $58.64.

Fortescue Metals ((FMG)) downgraded to Neutral from Outperform by CIMB Securities. B/H/S: 4/2/0

The company is on track for iron ore shipments and has reiterated FY14 guidance of 127-133mt. Nevertheless, CIMB suspects that, with a forecast US$10/t fall in the iron ore price over the next 12 months, the stock's ability to outperform is limited. The rating is downgraded to Neutral from Outperform and the price target is unchanged at $5.10.

Iluka Resources ((ILU)) downgraded to Neutral from Buy by UBS. B/H/S: 4/3/1

A slower-than-expected recovery in the titanium dioxide market has led to the broker downgrading Iluka to Neutral from Buy. The stock is up 20% year to date compared with the ASX200 Resources index which is down 7% and this is largely because of an expected recovery in titanium prices. According to prices published by Asian Metal, titanium slag prices are now down to US$865-882/t. UBS believes there is downside risk to Iluka's earnings expectations for 2013.

Incitec Pivot ((IPL)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/7/0

The broker has reviewed its valuation and has further cut FY14 forecast earnings by 8% on weaker fertiliser prices, to now be 9% below consensus, and by 2% in FY16-17 on the expected jump in gas input prices. Target falls to $2.83 from $2.94. While the share price has been weak, the broker does not see any reason the stock can do more than tread water over the next few months. Downgrade to Neutral.

Orica ((ORI)) downgraded to Sell from Neutral by UBS. B/H/S: 4/3/1

The broker remains confident that the Australian explosives industry will be manageable but in the near term there are some challenges. Given the ramp up of three new domestic plant through to FY20 UBS expects a more subdued environment in terms of pricing and returns. Near-term challenges include falling coal mine strip ratios and volumes and on a longer view there are structural issues around regional ammonium nitrate oversupply. The rating is downgraded to Sell from Neutral and the price target remains at $19.00.

OZ Minerals ((OZL)) downgraded to Sell from Neutral by UBS. B/H/S: 2/3/3

The September quarter production report was weaker than expected. Output was 17,400 tonnes with cash costs of US$2.06/lb copper up 6% quarter on quarter. Guidance for 2013 has been lowered to 70-75,000 tonnes of copper. UBS has downgraded the rating to Sell from Neutral. With the exception of capital management, the broker believes the company has not delivered on its strategy proposed back in 2009. Options for maintaining the business beyond 6-7 years are limited and growth is reliant on exploration success.

Ten Network ((TEN)) downgraded to Neutral from Outperform by Credit Suisse and to Underweight from Neutral by JP Morgan. B/H/S: 1/2/5

Ten's result was weak but not unexpected. Credit Suisse believes management is adopting the right strategy to turn the network around, but delivery will take time. Big Bash cricket should provide a boost, the broker suggests. Meanwhile the broker has downgraded to Neutral. Target falls to 32c from 38c. The FY13 result was ahead of JP Morgan's expectation on better control of costs in TV. The broker has downgraded to Underweight from Neutral, believing any material revenue increase will take time and requirement reinvestment. Management may be reinvesting in programming but the network lacks key sporting rights. The price target is reduced to 26c from 32c.

Transpacific Industries ((TPI)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 4/2/0

The stock has outperformed the Small Industrials by 30% since its FY13 trading update in June. JP Morgan believes the rally has been driven the announcement of a new CEO, media speculation that NZ assets may be sold and expectations of a rebound in waste volumes. At this stage the broker finds there's minimal evidence of a recovery in waste volumes. As the stock is trading at a premium to valuation the rating is downgraded to Neutral from Overweight. the price target is steady at $1.00.
 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Click to view our Glossary of Financial Terms