Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features JAMES HARDIE INDUSTRIES PLC, and other companies.
For more info SHARE ANALYSIS: JHX
The company is included in ASX50, ASX100, ASX200, ASX300 and ALL-ORDS

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.

Summary

Period: Monday March 3 to Monday March 7, 2013
Total Upgrades: 2
Total Downgrades: 6
Net Ratings Breakdown: Buy 38.69%; Hold 44.44%; Sell 16.87%

The number of rating changes for individual stocks dropped dramatically in the first week post the February reporting season. FNArena registered two upgrades and six downgrades. Nothing unusual given the frantic pace of changes in the last two weeks of reporting season and the fact that the share market overall has put in a splendid performance throughout the period.

Rising prices put pressure on immediate forward projected investment returns and thus Neutral ratings are again becoming de rigeur. Total Sell ratings remain high at 16.87% of all recommendations for the brokers monitored by FNArena which can be seen as yet another consequence of a share market that is valued slightly above long term trend, with earnings growth only starting to come through.

At face value, all key indicators -ratings, targets and earnings estimates- seem to display a negative skew, but investors should take note of the fact that the negative side is very much dominated by smaller resources stocks and mining services providers, while the positive side sees healthcare and other industrial stocks, plus resources stocks retaining a positive undercurrent in the present macro-driven environment.

One extra factor that is going to impact on share market indices this month is the latest round of additions and removals announced by Standard and Poor's on Friday. Judging by the numerous changes, smaller resources stocks and mining services providers are losing further importance in this market, while industrials remain on the up. Among the many new names that will increasingly appear on funds managers' radar are recent listings such as Cover-More, Pact Group, Orora and Veda Group. It can be argued those stocks represent the changing nature of the Australian share market.

Investors take note.

Upgrades

James Hardie ((JHX)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 2/2/2

James Hardie's quarterly result beat the broker and the company gave shareholders a 125-year anniversary present in the form of a US28c special dividend. Fibre cement sales improved in the US and Europe, and Asia Pacific improved returns on flat volumes. Hardie delivered an upbeat commentary and suggested more capital will be returned to investors which, for the broker, implies the share buy-back will not be as aggressive as management had suggested. With Australasia and the US showing positive trends in residential construction, the broker upgrades to Outperform. Target rises to $15.51 from $11.89.

See also JHX downgrade

Beach Energy ((BPT)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 1/3/1

Credit Suisse is upgrading to Outperform from Neutral, despite the strong run in the stock in recent weeks. The broker notes Beach has leverage to the rising prices for east coast gas, without the exposure to the downside of the export LNG projects. The company, the broker reminds, also has a quality oil business in the Western Flank. The broker has upgraded the target to $1.90 from $1.55, observing that material upside beyond this clearly hinges on the success in unconventional assets.

Downgrades

Ausdrill ((ASL)) downgraded to Underweight from Neutral by JP Morgan. B/H/S: 2/2/2

The first half results were broadly in line with JP Morgan's estimates. Management is now forecasting no improvement in trading conditions in the second half, with the pull-back in discretionary spending among its Australian and African mining customers weighing. Gearing is a concern too for the broker, reducing the buffer against risks. JP Morgan has downgraded to Underweight from Neutral, as the results also show the company has lost its strong link to mine production volumes in WA iron ore and Australian/West African gold. The price target is reduced to 82c from 98c.

Aurora Oil and Gas ((AUT)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 1/2/1

The broker was waiting for Aurora's result before assessing the Baytex bid just in case there were any potential deal breakers therein. There aren't. So, with the bid highly likely to succeed, the broker has downgraded to Neutral, given the stock is trading in line with the bid price. Target retained at the bid price of $4.10.

James Hardie ((JHX)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 2/2/2

Credit Suisse noted a US28c special dividend was announced in the third quarter, underpinned by a commitment to accelerate capital management. The broker believes this sends a strong signal to the market that management is confident about generating sufficient free cash flow. While capital management provides yield support, Credit Suisse has reduced the rating to Neutral from Outperform following the relative share price outperformance over the quarter. The broker is looking for a more attractive entry point. The target is raised to $15.00 from $13.50.

See also JHX upgrade

ResMed ((RMD)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 2/5/0

JP Morgan says the US Centre for Medicare and Medicaid Services has injected uncertainty into the state of reimbursements for sleep apnea equipment after calling for public comment on "bundling" for durable medical equipment (the introduction of bundling to dialysis triggered a 30% reduction in usage of injectables). The broker says the private payer market might also move to try and moderate resupply through bundling. Hence, while the overall ResMed outlook appears promising, the broker believes the downside risk is large and downgrades to Neutral from Overweight. The price target is steady at $5.88.

Westpac Banking ((WBC)) downgraded to Neutral from Buy by BA-Merrill Lynch. B/H/S: 2/3/2

The broker is downgrading to Neutral from Buy. The rally in the share price over the past month leaves the stock above Merrills' target. Earnings forecasts are unchanged. The price target is raised to $32.60 from $32.40. The key reason for the prior Buy rating was capital strength relative to peers, Commonwealth Bank ((CBA)), in particular. Now that CBA has decided not to neutralise the dividend reinvestment plan, Merrills observes Westpac's share price is a beneficiary. Westpac is now at price/earnings parity with CBA and this suggests to the broker there's limited scope for outperformance.

Woolworths ((WOW)) downgraded to Underperform from Outperform by Macquarie. B/H/S: 3/2/2

Following Woolworths' first half result, management has tightened its FY14 guidance range to 5-7% growth from 4-7% growth, and the broker has downgraded forecasts to 7%. The broker suggests, while the outlook for food & liquor remains positive, as was evident in quarterly sales numbers, sales at Masters are still declining and the losses are growing. The broker notes the share price ran very hard in 2013 and is now exceeding valuation. Target rises to $35.72 from $35.40 but rating downgraded to Underperform.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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