Weekly Recommendation, Target Price, Earnings Forecast Changes

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This story features BHP GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: BHP
The company is included in ASX20, 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: Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, Morgan Stanley, Morgans and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

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

Summary

Period: Monday July 13 to Friday July 17, 2015
Total Upgrades: 11
Total Downgrades: 3
Net Ratings Breakdown: Buy 41.64%; Hold 41.94%; Sell 16.43%

With investors preparing for the local reporting season, amendments to stockbroking analysts' ratings and forecasts seem to have landed in positive territory. For the week ending Friday, 17th July 2015, FNArena registered eleven upgrades for individual stocks and only three downgrades. Further adding to the positive undercurrent is that nine of these upgrades were to Buy (or equivalent) with beaten down Whitehaven Coal receiving two upgrades post its June quarter trading update.

Downer EDI, ResMed and Transurban were the three unlucky ones to receive downgrades. ResMed's was to Sell.

A similar picture emerges when overlooking changes made to analysts' valuations/price targets and profit forecasts. While overall amendments made remain benign, the skew is a positive one. Resources stocks continue to dominate as analysts update mid-year price forecasts.

Industrial stocks that managed to stand out, among the resources dominated crowd, include Cochlear, Sydney Airport, GPT and Aristocrat Leisure on the positive side. On the negative side we find Medibank Private, Seek, Primary Healthcare and Perpetual.

Only two more weeks to go before the reporting season starts.

Upgrades

APN News & Media ((APN)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 3/4/0

Macquarie updates earnings forecasts following changes to currency estimates, with a weaker New Zealand dollar impacting on the stock. 2015 and 2016 forecasts are downgraded 5.2% and 6.3% respectively, but the broker upgrades to Outperform from Neutral, given the recent sell off. Target is reduced to 95c from $1.00. Outside of FX adjustments the company has a solid outlook given momentum in its radio and outdoor assets, Macquarie maintains.

BHP Billiton ((BHP)) upgraded to Buy from Neutral by Citi. B/H/S: 4/4/0

Following recent share price weakness, Citi analysts have decided it's time to upgrade to Buy from Neural. At the same time, they highlight "significant risks" remain. Earnings estimates decline further as commodity prices forecasts have been updated. Price target falls to $29 from $30 in line with the fall in Net Present Value (NPV).

Cochlear ((COH)) upgraded to Overweight from Underweight by JP Morgan. B/H/S: 2/0/6

After reviewing the findings of the second "Ear to the Ground" survey the broker is upgrading to Overweight from Underweight and raising the target to $90.62 from $73.30. The survey is based on US audiologists and suggests overall market growth for cochlear implants is about 10%. Moreover, the company appears to be regaining lost market share. The broker expects a robust FY15 result and this should underpin attractive growth over several years despite large hedge book losses. JP Morgan believes any improvement on the productivity of R&D spending has potential to create meaningful earnings leverage.

Eclipx Group ((ECX)) upgraded to Buy from Neutral by Citi. B/H/S: 3/0/0

Given recent share price weakness Citi is upgrading to Buy from Neutral. Forecasts are unchanged but the target is raised to $3.38 from $3.35. Citi expects acquisitions can be made to create further economies of scale and the company can capitalise on funding, procurement and logistics. Vehicle operating leases are at the core of the business but the broker believes consumer and equipment finance are growth opportunities.

Flight Centre ((FLT)) upgraded to Equal-weight from Underweight by Morgan Stanley. B/H/S: 2/4/0

Shares have fallen 24% since the June 23 warning and Morgan Stanley envisages considerable longer-term pressure on the business model. Valuation, yield and excess franking credits provide support. The broker does not believe capital management is imminent but may be plausible in the medium term. All up, the broker argues the stock should trade at a discount to the wider market but considers the current price/earnings ratio a fair valuation. Rating is upgraded to Equal-weight from Underweight. Target is steady at $34

Horizon Oil ((HZN)) upgraded to Buy from Neutral by UBS. B/H/S: 2/0/1

June quarter production was up 13% and in line with the broker's expectations, thanks to progress on the Maari field. UBS makes adjustments to sales and depreciation estimates with the result FY15 earnings estimates fall by 39.8%. The share price has fallen over 70% in the past nine months along with the drop in oil prices amid a stretched balance sheet. Low liquidity means the focus is on survival rather than growth. While the company has a strategy in place to avoid raising equity, the broker suspects asset sales may be needed to relieve the pressure on the balance sheet. UBS upgrades to Buy from Neutral, more confident now that an equity raising can be avoided. Target is reduced to 12c from 14c.

Rio Tinto ((RIO)) upgraded to Buy from Neutral by Citi. B/H/S: 4/4/0

Citi has updated commodity prices forecasts, triggering further cuts to profit forecasts. This triggers a fall in Net Present Value (NPV) which triggers a fall in price target; to $58 from $60. Following recent share price weakness, the analysts have decided to upgrade to Buy from Neutral. They add "significant risks" remain.

Seek ((SEK)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 4/3/1

CS has upgraded Seek to Neutral from Underperform in response to recent share price weakness. The analysts have also reduced estimates in response to the company's recent market update which showed Seek Learning is not performing in line with expectations. Price target drops to $15.22 (was $16.00) as a result of incorporating a lower valuation for Seek Learning. CS prefers REA Group ((REA)) in the space as it sees more upside potential for REA shares.

Sigma Pharmaceuticals ((SIP)) upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 1/3/2

The rating has been lifted to Outperform from Neutral following severe share price weakness. The analysts do acknowledge margin pressure for the sector as a whole is going to remain a feature, nevertheless they believe the share price is looking cheap. The analysts also note the contract with Chemist Warehouse, up for renewal in October, represents some 37% of revenues. Anticipating stronger non-PBS revenues, the analysts have slightly increased expectations. Target lifts to $0.83 from $0.77.

Whitehaven Coal ((WHC)) upgraded to Buy from Neutral by Citi and to Outperform from Neutral by Credit Suisse. B/H/S: 3/4/1

June quarter production was 4.0% ahead of the broker's estimates driven by strong production at Narrabri. Citi notes a lower Australian dollar has offset minor changes to the ramp up of Maules Creek. This drives modest upgrades to FY16 earnings estimates and the broker upgrades to Buy from Neutral after a share price correction. Target is unchanged at $1.60. Credit Suisse notes investor interest remains absent. Following weakness in the share price, the analysts have decided to upgrade to Outperform from Neutral. CS analysts acknowledge the debt burden, but they maintain discounted cash flows remain supportive of the share price valuation. They suggest Whitehaven probably represents the best growth story in their miners research coverage. Target remains $1.60.

Downgrades

Downer EDI ((DOW)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 3/4/1

Downer is continuing to perform well in what is a tough environment, the broker suggests, but cannot fight a sector downturn which sees the broker lowering earnings forecasts head of the company's FY15 result. Target falls to $4.90 from $5.00 but while valuation is not demanding, the share price is trading near this level hence the broker downgrades to Neutral.

ResMed ((RMD)) downgraded to Underperform from Neutral by Macquarie. B/H/S: 3/3/2

The broker has read all the literature and spoken with cardiologists in order to assess what impact SERVE-HF will have on broader industry sales, and decided that the impact will be broader than just the SERVE-HF population and that it is difficult to be confident other patients are not at risk. Nor does the broker believe the upcoming CPAP studies will deliver the positive results the market has baked into the ResMed price. Thus the broker retains an $8.00 target but downgrades to Underperform.

Transurban ((TCL)) downgraded to Neutral from Buy by Citi. B/H/S: 4/3/0

June quarter proportional revenue was ahead of Citi's expectations. The Sydney network reported a strong growth rate for revenue in the fourth quarter, supported by traffic growth post widening of the M5. Citylink, Brisbane and the US network remain strong. Citi downgrades to Neutral from Buy rating, raising the target to $10.43 from $10.20.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

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