It’s tough to receive a recommendation upgrade from an Australian based stockbroker these days. In the week ending Friday 4 December, only four stocks received an upgrade. New Zealand-headquartered Fisher & Paykel Healthcare stole the show with two upgrades, but only one went as far as ”Buy”. The other three “lucky” ones were Metcash, Santos and Treasury Wines.
In the good books
Fisher & Paykel Healthcare Corporation (FPH) Upgrade to Buy from Sell by Citi; Upgrade to Neutral from Underperform by Credit Suisse. B/H/S: 3/1/1.
Citi analysts had another look at the company’s first-half release and they obviously liked what they discovered. Amongst the conclusions drawn is the company continues to grab market share from ResMed (RMD).
Citi is forecasting earnings-per-share growth of 30% in fiscal 2106, 30% in fiscal 2017 and 21% in fiscal 2018.
First half earnings were up 31.1% amid a favourable exchange rate. Following a transfer of coverage to another analyst, Credit Suisse revises forecast operating earnings up 11% for fiscal 2016 and 17% for fiscal 2017.
This captures a strong underlying growth profile in key markets and expansion in penetrating the patient population with its products.
Metcash (MTS) Upgrade to Overweight from Equal-weight by Morgan Stanley. B/H/S: 3/2/2.
In the wake of the first half results, Morgan Stanley has become more bullish on the stock as the valuations appear more attractive. The broker cites evidence the food and grocery transformation is working.
The results were far better than envisaged and the broker believes the liquor and hardware businesses are well placed for growth.
Santos Limited (STO) Upgrade to Outperform from Neutral by Credit Suisse. B/H/S: 7/1/0.
Credit Suisse now believes the time has come when Santos appears too cheap.
The broker hastens to add this is not a revision of its view of the assets rather than the risk/reward is now more skewed in investor favour.
Credit Suisse now believes the micro factors in 2016 are likely to be less negative. Still, Santos remains a leveraged call on oil prices.
Treasury Wine Estates (TWE) Upgrade to Outperform from Neutral by Credit Suisse. B/H/S: 1/6/0.
Credit Suisse observes the Chinese wine market is growing rapidly, with retail prices for imported wines falling, and spurring strong demand.
The broker’s checks suggest Treasury Wine’s brands are participating in this evolution, but its share of Australian wine exports to China is only 10%. The broker intends to visit China this month to assess the potential.
In the not-so-good books
Aurizon Holdings (AZJ) Downgrade to Reduce from Hold by Morgans. B/H/S: 4/3/1.
Morgans believes the market is too bullish regarding Aurizon and revises down forecasts by 2-10% across fiscal 2016-19, given challenging end markets.
Coal and iron ore export prices continue to trend downwards and with the expiry of coal haulage contracts early in the next decade, the broker is conscious that weak prices may result in early termination or non renewal.
Morgans suspects the share price has surged recently as a result of speculation about capital management, but believes the company is already devouring all its cash flow with dividend payments in fiscal 2016-17
Iluka Resources (ILU) Downgrade to Neutral from Outperform by Credit Suisse. B/H/S: 3/3/1.
Credit Suisse has updated its mineral sands price forecasts, expecting depressed prices will continue to the end of the decade.
Iluka’s 2015 earning forecasts are downgraded by 16%. The broker expects lower zircon and rutile production in 2016 but, given improved cash flow, the company is expected to be in a net cash position by the end of the year.
Oil Search (OSH) Downgrade to Neutral from Outperform by Credit Suisse. B/H/S: 3/4/1.
Credit Suisse has made a hard call and decided to downgrade the stock. The broker believes the stock is the highest quality offering in the sector in the Australian market in terms of management, producing assets and growth assets. Yet, the valuation no longer stacks up for the broker.
Regis Healthcare Limited (REG) Downgrade to Hold from Buy by Deutsche Bank. B/H/S: 0/4/0.
While demographics and the property market around aged care remain sound, Deutsche Bank observes the sector is clouded by funding reform issues and this is a reminder of the dependency on government funding.
A diminished save-haven status may lead to a compression of multiples, the broker warns, despite the attractive elements remaining intact.
Ramsay Healthcare Limited (RHC) Downgrade to Neutral from Outperform by Credit Suisse. B/H/S: 3/3/2.
Credit Suisse analysts have lowered their private hospital revenues forecasts for the years ahead following the latest industry data which showed slower growth. As a direct result, earnings estimates have been lowered for both Ramsay Health Care and its main ASX-listed competitor Healthscope (HSO).
Healthscope Limited (HSO) Downgrade to Underperform from Neutral by Credit Suisse. B/H/S: 3/4/1.
Credit Suisse analysts have lowered their private hospital revenues forecasts for the years ahead following the latest industry data which showed slower growth.
The analysts retain their preference for Ramsay because of its ongoing superior growth profile.
Woodside Petroleum (WPL) Downgrade to Neutral from Outperform by Credit Suisse. B/H/S: 0/6/2.
With confusion over its plans for the Oil Search (OSH) bid and few positive catalysts likely soon from any growth assets, Woodside’s risk/reward no longer looks so attractive to Credit Suisse and the rating is now downgraded.
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