By Chris Shaw

As Australian profit reporting season moves into full swing brokers have picked up the pace of ratings changes, the eight brokers in the FNArena database upgrading 18 stocks and downgrading 34 over the past week. The changes mean total Buy ratings have fallen to 48.48%.

Both Goodman Fielder ((GFF)) and SAI Global ((SAI) received two upgrades post profit results, RBS Australia and Credit Suisse lifting ratings for the former and Citi and JP Morgan for the latter. RBS moved to Buy from Hold on Goodman Fielder based on the view earnings have now re-based, which could prompt either the reinstatement of dividends or some corporate interest. Credit Suisse agrees both are possible and lifts its rating to Neutral from Underperform.

SAI Global ((SAI)) again fell short of expectations in its core Compliance division in particular and brokers have consequently cut earnings estimates and price targets. But recent underperformance has improved the value on offer, which drives the upgrades to Buy from Hold ratings for both Citi and JP Morgan. In contrast, Deutsche downgraded to Hold from Buy given its view the stock is fully valued at current levels.

Adelaide Brighton ((ABC)) enjoyed an upgrade from UBS to Buy from Hold on valuation grounds following interim earnings this week, while at the same time Credit Suisse downgraded its rating to Neutral from Outperform given some concerns with respect to cement volumes in the current operating environment.

An upgrade for Ansell ((ANN)) to Buy from Hold by Macquarie followed a solid profit result and increases to the broker's earnings estimates and price target. There is value on offer in Macquarie's view given Ansell is trading on a market multiple at present. 

A flat result was seen as solid performance from ARB Corporation ((ARP)) given tough operating conditions through the year and Citi expects further solid performance through at least the next nine months. This, and a reasonably attractive valuation, drive an upgrade to a Buy rating.

Carsales.com ((CRZ)) delivered solid results in the face of strong competitive pressures and this was enough for Macquarie to lift earnings forecasts and price target for the stock. The resilience of the business model in a difficult environment has given increased confidence and sees Macquarie move to a Neutral rating from Sell.

Management at Downer EDI ((DOW)) has now addressed some key concerns, so post full year earnings Credit Suisse has lifted its forecasts and price target. A more positive view is now justified and Credit Suisse has upgraded to Buy from Hold.

While full year earnings for GWA ((GWA)) were down significantly relative to FY11, Citi suggests most of the bad news is now behind the company. This is enough to drive an upgrade to Hold from Sell. At the same time both UBS and Deutsche Bank downgraded to Hold ratings from Buy, UBS pointing out while restructuring is being undertaken and there remains leverage to an economic recovery, the timing of any such recovery remains uncertain. 

A marking-to-market of Henderson's ((HGG)) investments has boosted UBS's earnings expectations for the stock, enough for the broker to upgrade to Buy from Hold. At the same time UBS concedes an improvement in investment flows will remain a challenge for the company.

iiNet ((IIN)) beat RBS Australia's expectations for full year earnings and factoring in higher margins and cost savings sees the broker lift its price target. This drives an upgrade to a Buy rating from Hold, supported by the broker's view iiNet offers relative earnings certainty at present.

Improving farm margins should be a boost for earnings at Nufarm ((NUF)) and to reflect this BA Merrill Lynch has upgraded to a Buy rating from Hold. Forecasts and price target were lifted post a review of the company.

Paladin ((PDN)) signed a uranium off-take agreement during the week and this was enough for JP Morgan to upgrade to Buy from Hold on the stock. The deal removes balance sheet concerns given a significant up-front payment, while the broker also likes the leverage to underlying uranium prices.

While RBS has trimmed forecasts for Pharmaxis ((PXS)) to reflect a slower than expected ramp-up of sales for Bronchitol, recent share price weakness offers an opportunity and the broker has moved to a Buy rating from Hold.

Sirtex Medical ((SRX)) received positive reviews from FDA trials of its chemotherapy product and this has prompted UBS to upgrade to a Buy rating from Neutral. An increase in price target supports the more positive view.

Following a review JP Morgan has upgraded Spark Infrastructure ((SKI)) to Buy from Hold, the upgrade reflecting a relative valuation discount to peers and potential for improving cash flow to support higher distribution payouts going forward.

There were few surprises in the Wesfarmers ((WES)) profit result but RBS made enough changes to earnings forecasts to lift price target. With consensus forecasts for the stock having fallen by more than for Woolworths ((WOW)) in recent months risks now appear priced in, so RBS upgrades to a Neutral rating. Citi went the other way and downgraded to Sell from Hold on Wesfarmers, this given the expectation the pace of earnings growth for the company will slow.

Among other downgrades, both Citi and UBS cut ratings for ASX Limited ((ASX)), the former to Sell from Hold and the latter to Hold from Buy. For UBS earnings growth has effectively been deferred for a year and this impacts on valuation, while Citi's downgrade also reflects revisions to earnings estimates and price target.

Goodman Group ((GMG)) received multiple downgrades over the week, RBS, Citi and JP Morgan all moving to Neutral ratings from previous Buys. The problem for the stock is recent share price strength limits the upside potential on offer, though RBS did suggest looking to buy the stock on any share price weakness in coming weeks.

A solid profit result from Primary Health Care ((PRY)) was not enough to stop RBS and Deutsche downgrading to Hold ratings from Buy. For RBS an uncertain earnings outlook is the driver of the rating change, while Deutsche's concern is further pathology funding cuts are looming. At the same time Deutsche suggests the stock is trading around fair value.

Most downgraded stock of the week was UGL ((UGL)), with Citi, JP Morgan and Deutsche all cutting ratings to Hold from Buy and Macquarie to Sell from Hold following cuts to earnings estimates post a the full year earnings result. A tougher earnings outlook has driven the reductions in forecasts and price targets, with Macquarie suggesting the result is enough to bring UGL's safe haven status into question.

Credit Suisse cut earnings forecasts for Aurora Oil & Gas ((AUT)) post the group's full year profit result and the changes mean a limited total return on offer. This was enough for the broker to downgrade to Hold from Buy.

Recent share price gains have been enough for Macquarie to downgrade Bendigo and Adelaide Bank ((BEN)) to Neutral from Outperform prior to next week's profit result, while weaker guidance cutting earnings forecasts and so limiting upside potential was enough for RBS to downgrade Brambles ((BXB)) to Hold from Buy.

Cardno ((CDD)) has enjoyed a recent re-rating and this has prompted Macquarie to downgrade to Neutral from Outperform. Full year earnings met expectations and mean only minor changes to the broker's model for the company.

While Commonwealth Bank ((CBA)) delivered a solid enough result UBS has cut its rating to Neutral from Buy, seeing the bank as simply too expensive at current levels despite what remains an attractive dividend payout.

Crown ((CWN)) also delivered a relatively solid result but Credit Suisse has trimmed earnings estimates and price target given increased capex and debt assumptions. Rating is cut to Hold form Buy with the stock trading near the broker's revised price target.

Valuation is the driver of Macquarie's downgrade of Dexus ((DXS)) to Underperform from Neutral, as the share price is trading broadly in line with a revised price target. It is a similar story for Credit Suisse with respect to Domino's Pizza ((DMP)), which delivered a solid profit result but has been downgraded to Hold from Buy given a high relative multiple.

GPT ((GPT)) has suffered a similar fate, as while Macquarie liked the profit result and lifted forecasts and price target on the back of updated guidance the share price is trading in line with the broker's revised target. Rating has been downgraded to Hold from Buy.

A recent run in the share price has seen Credit Suisse downgrade James Hardie ((JHX)) to Hold from Buy, this despite the broker remaining attracted to the company's cyclical growth opportunities. Credit Suisse has also downgraded JB Hi-Fi ((JBH)) to Sell, this given the view profit is likely to remain constrained for the next couple of years given ongoing difficult market conditions.

Results and production guidance from Newcrest ((NCM)) were broadly as Citi had expected, but with gold de-rating and given recent share price strength the broker doesn't see as much value on offer. Rating has been cut to Hold from Buy. 

OrotonGroup ((ORL)) has lost an exclusive licence with Ralph Lauren Polo and this has prompted Citi to move to a Sell rating from Hold. For Citi, the news means an Asian store rollout program is going to need to be very successful to restore investor confidence. 

Lower cash sees UBS lower earnings forecasts for OZ Minerals ((OZL)) and when combined with a lack of exploration success is enough for the broker to downgrade to a Sell rating from Neutral. Price target has also been reduced.

Solid outperformance year to date has REA Group ((REA)) fully valued on JP Morgan's numbers, this despite a good full year profit result. Rating is cut to Hold from Buy. Valuation is the broker's issue with SingTel ((SGT)), as a high earnings multiple prompts a similar downgrade in rating.

Telstra ((TLS)) has been downgraded by Macquarie to Hold from Buy on valuation grounds post a solid full year profit result, while a similar argument has been presented to justify the same downgrade in Macquarie's rating for Westfield Retail Trust ((WRT)).

Among stocks in the database, the largest increase in price targets for the week was in Goodman Group ((GMG)) and Domino's Pizza, while the most significant cuts were for Oroton, UGL and SAI Global. 

For earnings forecasts the results were a little different, Goodman again among the largest increases along with Ansell and SAI Global. The major cuts to forecasts were experienced by Aquarius Platinum ((AQP)), SMS Management and Technology ((SMX)), UGL and Alacer Gold ((AQG)).
 

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