In the good books

Carsales.com (CAR) was upgraded to Buy from Hold by Ord Minnett

While several areas of the company’s business are experiencing challenges, Ord Minnett believes the core is solid and the long-term opportunity internationally is significant. The stock is now trading at a discount to peers and its long-term average forward PE.

The broker suggests the display advertising division has shown resilience in a changing market, while dealers continue to rely on carsales.com to sell their product, particularly the premium end of the market.

Ord Minnett upgrades to Buy from Hold. Target is lowered to $14.84 from $15.77.

Cleanaway Waste Management (CNW) was upgraded to Outperform from Neutral by Credit Suisse.

Ahead of the company’s investor day today, Credit Suisse upgrades to Outperform from Neutral and raises the target price to $2.05 from $1.90. The broker expects an upbeat presentation on the growth potential, operational gearing and Toxfree integration progress.

The broker has trimmed its FY19 earnings estimate by -2% on a higher D&A forecast and raised FY21 forecast by 13% on higher medium-term revenue growth and the benefit of operational gearing. Target price is $2.05

Fletcher Building (FBU) was upgraded to Neutral from Underperform by Credit Suisse

Credit Suisse suspects there is a risk the company’s guidance for FY19 earnings of $630-680m will be de-railed, because of a gradually softening of its core NZ business, which needs to be offset by a turnaround in Australia.

The broker further notes, while the company is positioning guidance as conservative regarding the Australian cycle, there is also margin pressure and investors will be looking for assurances there are no further structural pressures in FY19.

Credit Suisse takes the opportunity to pull back Australian forecasts. Rating is upgraded to Neutral from Underperform on valuation. Target is reduced to NZ$5.43 from NZ$6.01.

G8 Education (GEM) was upgraded to Outperform from Neutral by Macquarie and to Overweight from Equal-Weight by Morgan Stanley.

Macquarie found the trading update slightly behind prior guidance, but the good news came through via improving occupancy trends. The analysts believe industry conditions are to remain tough, predominantly because of surplus supply, but they fully acknowledge there appears now mounting evidence of stabilising occupancy.

The latter suggests earnings may have bottomed across the industry. Macquarie upgrades to Outperform from Neutral, seeing further re-rating potential. Price target jumps to $3.15 from $2.08.

Morgan Stanley says that it appears occupancy across the sector has bottomed sooner than anticipated, meaning earnings are picking up quicker. This, again, diminishes the risk of a further leg down.

Morgan Stanley upgrades to Overweight from Equal-weight. Price target jumps to $3.25 from $2.30. Industry view is In-Line. Earnings estimates have been slightly reduced for 2018 but increased for 2019.

Growthpoint Properties (GOZ) was upgraded to Hold from Lighten by Ord Minnett.

The company has acquired 100 Skyring Terrace, Newstead, Brisbane. The purchase price of $250m reflects a 6.1% pre-cost yield.

Ord Minnett notes the share price has declined -4% since August, which leads to an upgrade to Hold from Lighten. Distribution guidance for FY19 remains unchanged at $0.23 per share.

This stock is not covered in-house by Ord Minnett. Instead, the broker white-labels research by JP Morgan.

Iluka Resources (ILU) was upgraded to Accumulate from Hold by Ord Minnett

While the share price has fallen more than -30% over recent months, Ord Minnett is focused on the valuation support and the options around Jacinth-Ambrosia. The broker believes the company has a number of levers that can be pulled if mineral sands markets remain tight.

If expansions at Sierra Rutile do not deliver sufficient return, investors should be able to participate in a cash flow windfall from controlling the world’s best mineral sands assets in a tight market.

Rating is upgraded to Accumulate from Hold. Target is reduced to $9.80 from $10.80.

This stock is not covered in-house by Ord Minnett. Instead, the broker white-labels research by JP Morgan.

Stockland (SGP) was upgraded to Neutral from Sell by UBS

UBS remains cautious about the business, as residential conditions continue to deteriorate and there is a lack of liquidity in the retail portfolio. Still, increasingly, these themes appear to be reflected in the stock price.

The broker adjusts estimates to reflect a large second half skew but still forecasts growth in free funds of 5.8%. Rating is upgraded to Neutral from Sell and the target is reduced to $3.73 from $4.08.

In the not-so-good books

Collins Food (CKF) was downgraded to Hold from Add by Morgans

The company will report its first half result on November 28. Morgans expects a solid result, primarily driven by the annualisation of recent acquisitions in addition to underlying growth in the base business.

Morgans remains attracted to the growth prospects, including continued growth in KFC Australia and the ramp up of KFC in Europe as well as margin improvement.

Following the recent rally in the share price, the broker notes the stock is trading at a meaningful premium to the long-term average and downgrades to Hold from Add. Target is raised to $6.92 from $6.84.

The above was compiled from reports on FNArena. The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

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 regard to your circumstances.