The chart below shows the buy recommendations of brokers. Companies are only displayed in this table if at least 5 of the above mentioned brokers have a current position on the stock. A broker sentiment value of +1 means all brokers have a buy recommendation. The target price upside/downside is relative to the price at the time the table was updated.
The stocks with the largest target price upside this week are Vocus Communications with 42.8% and The Star Communications Group with 29.4%.
[table “251” not found /]
In the good books
CSL LIMITED (CSL) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Accumulate from Hold by Ord Minnett and Upgrade to Equal-weight from Underweight by Morgan Stanley B/H/S: 5/2/0
The company issued an upgrade to previous FY17 guidance and Credit Suisse analysts are suggesting CSL is benefiting from supply issues among competitors. Specialty products and raw plasma in particular are being singled out.
The crux in this story is that CSL has recorded a substantial increase in plasma collection capacity in recent years. This now is enabling the company to meet additional demand requirements and gain market share, point out the analysts.
Upgrade to Outperform from Neutral. Target jumps to $119 from $110. Estimates have lifted.
CSL revising upwards its profit guidance for FY17 has triggered an upgrade to Accumulate from Hold, alongside a boost to the price target to $120 from $100 prior. Ord Minnett analysts admit they were taken by surprise.
The analysts note the company’s strategy of “aggressively investing” in collection and fractionation capacity is allowing CSL to again take advantage of a supply issues among competitors. They see further upside to the implied underlying growth rate for H2.
Ord Minnett has now taken the view CSL stands to enjoy above-market growth from its core plasma operations for at least a further 18 months. This prediction has now been reflected in forecasts.
Morgan Stanley’s longstanding Underweight rating on CSL was driven by a (correctly) assumed period of downward earnings revisions. Recently the broker has seen earnings risk dissipating, and this has been confirmed by CSL’s guidance upgrade, largely due to leaving competitors in the dust.
History suggests it takes a long time for the competition to recover, thus while valuation still looks stretched to the broker, an upgrade to Equal-weight follows. Target rises to $106 from $96. Industry view: In-line.
CALTEX AUSTRALIA LIMITED (CTX) Upgrade to Buy from Hold by Deutsche Bank B/H/S: 5/1/0
On Deutsche Bank’s observation, Caltex shares have underperformed the broader market in Australia by some 30% over the past 12 months. This now creates an opportunity for investors, say the analysts, as too low expectations (“unrealistically low”) have been priced in.
Much easier comp virtually guarantees a return to growth in 2017, suggest the analysts. Price target of $35 suggests the potential for double-digit return. Upgrade to Buy from Hold.
G8 EDUCATION LIMITED (GEM) Upgrade to Accumulate from Hold by Ord Minnett B/H/S: 3/1/0
An apparent stabilisation in margins and a new CEO has Ord Minnett analysts speculating whether this could be the early beginnings of a new chapter for this company. The idea becomes attractive as the current share price doesn’t seem to account for any upside, in the analysts’ view.
Ord Minnett thinks management’s new strategy doesn’t require a lot of capital, but if successful, material gains could be made. Not in the share price at present level. A new analyst has resumed coverage and he has upgraded to Accumulate from Hold. Target rises to $3.78 from $3.25 on increased forecasts.
ORIGIN ENERGY LIMITED (ORG) Upgrade to Overweight from Equal-weight by Morgan Stanley B/H/S: 2/3/2
Origin is close to full operations at APLNG, a sustainable capital structure, and reduced corporate complexity, Morgan Stanley notes. The company’s balance sheet repair process, simplification plans and incremental earnings growth for the Energy Markets division see the broker upgrade to Overweight.
Divestment of conventional gas assets will leave a simpler business more able to weather lower oil prices, Morgan Stanley suggests. Origin remains energy retail leader by customer market share. Target rises to $8.75 from $6.04.
In the not-so-good books
ASALEO CARE LIMITED (AHY) Downgrade to Neutral from Buy by Citi B/H/S: 1/2/0
On Citi’s observation, competition remains high in the tissue categories in Australian supermarkets and this should keep the pressure on Asaleo Care. Revised forecasts now assume group earnings to decline in both FY16 and FY17.
The offset is the company is expected to appease shareholders with a high dividend payout (10c, stable), hence why Citi thinks a Neutral rating is more appropriate than moving to Sell. The 7%-plus yield should provide support. Target drops 10c to $1.50.
ALACER GOLD CORP (AQG) Downgrade to Neutral from Outperform by Macquarie B/H/S: 3/2/0
Alacer enjoyed a heap leach grade breakthrough in the December quarter having resolved earlier issues, leading to production beating Macquarie by 9%. Revised 2016 guidance was achieved. While 2017 should now see much improved cash flow, it will also see peak capex for the sulphide project, the broker notes.
Macquarie has lifted its target to $2.40 from $2.30 but given strength in the share price, downgrades to Neutral.
BENDIGO AND ADELAIDE BANK LIMITED (BEN) Downgrade to Sell from Hold by Deutsche Bank B/H/S: 1/2/3
While acknowledging the bank’s prospects have improved in recent quarters, Deutsche Bank analysts are simply of the view the share price has run way too hard. Downgrade to Sell from Hold. Price target lifts to $11.40 from $10.70, still well below the share price.
COMMONWEALTH BANK OF AUSTRALIA (CBA) Downgrade to Sell from Neutral by Citi B/H/S: 1/5/2
Banking analysts at Citi published not one but a few reports on the Australian banking sector today. The bottom line is that share prices have run hard, while the analysts remain of the view there is no operational improvement on the horizon to justify the rally.
Citi has downgraded CommBank to Sell from Hold. Target price remains $75. The broker’s pecking order for the sector remains unchanged: (most to least preferred) ANZ, NAB, WBC, CBA.
Note: CBA is still expected to cut its dividend to 357c in FY18.
REGIS RESOURCES LIMITED (RRL) Downgrade to Neutral from Outperform by Macquarie B/H/S: 3/5/0
Regis’ December quarter numbers were broadly in line with Macquarie’s expectation, with higher grades at Duketon providing a production boost. First ore from Gloster and Erlistoun will further boost grades.
Strong cash generation is ongoing and exploration remains in focus. While Macquarie believes Regis’ consistent delivery justifies a premium to peers, the share price has run ahead of valuation. Downgrade to Neutral. Target rises to $3.00 from $2.90.
See also RRL upgrade.
SIMS METAL MANAGEMENT LIMITED (SGM) Downgrade to Underperform from Neutral by Credit Suisse and Downgrade to Neutral from Buy by Citi B/H/S: 2/3/2
The company has upgraded its guidance for FY17 and Credit Suisse analysts have been forced to upwardly adjust their forecasts. Yet, they remain of the view the only way forward for the iron ore price is down, and this means prices for scrap will follow.
On this basis, downgrade to Underperform from Neutral. Target price remains $9.90. A second factor underpinning the downgrade is the fact the share price is trading well above target.
On Citi’s observation, the share market had already anticipated the improvement in market dynamics for scrap steel collector and seller, Sims Metal. The analysts have updated forecasts and lifted the price target to $13.70 from $11.20.
As the revised price target is only marginally above the share price, the rating is downgraded to Neutral from Buy. Note: Citi’s estimates are some 23% ahead of
consensus EPS estimates for FY17.
SANTOS LIMITED (STO) Downgrade to Neutral from Buy by UBS B/H/S: 4/3/1
UBS has lowered its 2018-20 oil price forecasts by 6-7%. While 2017 will see OPEC/non-OPEC production cuts have their effect, this will quickly be offset and surpassed by an aggressive US shale response, supported by falling costs, the broker believes. Forecasts nevertheless remain above consensus.
A US$60/bbl (Brent) forecast remains in place for 2017. A fall in LNG storage levels leads to an increase in natgas price forecasts. The broker has adjusted for Santos’ surprise raising and suggests a clear focus on cost reduction provides for few catalysts in 2017.
Target falls to $4.60 from $4.90. Downgrade to Neutral.
WESTPAC BANKING CORPORATION (WBC) Downgrade to Sell from Neutral by Citi B/H/S: 4/3/1
Banking analysts at Citi published not one but a few reports on the Australian banking sector today. The bottom line is that share prices have run hard while the analysts remain of the view there is no operational improvement on the horizon to justify the rally.
Citi has downgraded Westpac to Sell from Neutral. Target price loses 50c to $30.50. The broker’s pecking order for the sector remains unchanged: (most to least preferred) ANZ, NAB, WBC, CBA.
Note: Citi still expects the dividend to be cut to 160c in FY18.
Earnings Forecast
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
