In the good books

ALTIUM (ALU) was upgraded to Buy from Neutral by UBS

UBS upgrades to Buy from Neutral as the valuation appears highly attractive for the long-term growth trajectory. A commercialisation of the relationship with Dassault is a material near-term catalyst. While the broker believes the company is unlikely to achieve FY20 guidance, demand for the product is unchanged and sales momentum is expected to be maintained into FY21. Target is reduced to $37.50 from $39.00.

APA GROUP (APA) was upgraded to Buy from Neutral by UBS

APA Group is considered well insulated from supply and demand shocks related to coronavirus, despite having been caught up in the broader equity sell-off. Hence, UBS upgrades to Buy from Neutral. The stock offers an attractive mix of growth and defensive income and is the preferred exposure across the broker’s utilities coverage. Target is $11.40.

BEACH ENERGY (BPT) was upgraded to Accumulate from Hold by Ord Minnett

Ord Minnett materially lowers oil price forecasts to US$42/bbl in 2020 and US$45/bbl in 2021 although, while spot oil prices suggest further downside risk, does not believe the US$30/bbl Brent price is sustainable. Overall, the energy sector is considered attractive for investors looking for long-term returns and companies with strong balance sheets and limited growth should be the priority, in the broker’s view. Hence preferences include Beach Energy, upgraded to Accumulate from Hold. Target is reduced to $2.15 from $2.45. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

BHP GROUP (BHP) was upgraded to Buy from Neutral by Citi and to Overweight from Equal-weight by Morgan Stanley

Citi runs stress tests to incorporate increasingly bearish commodity prices. While gearing will rise for those companies with growth projects this will not be to levels that should cause concern. BHP Group is now trading at a -33% discount to the broker’s base case and the rating is upgraded to Buy from Neutral. Target is reduced to $35.00 from $39.50.

BHP Group’s share price has de-rated sharply, Morgan Stanley notes, down -31% year to date on oil exposure compared to Rio Tinto’s (RIO) -19% and the ASX200’s -14% (year to date). The broker considers this overdone and sees an opportunity to gain exposure to a quality business with potential to generate attractive free cash flow through the cycle, a robust balance sheet and prudent capital allocation. If the broker plugs in its base case commodity price forecasts and oil at current spot for perpetuity, valuation is still $32.70, well above the traded price. Upgrade to Overweight. Target falls to $36.50 from $37.50.

BORAL (BLD) was upgraded to Outperform from Neutral by Credit Suisse

While Boral may screen as the stock to avoid, given high financial leverage, Credit Suisse believes this is more than compensated for by valuation. The broker is no longer of the view that Boral will raise equity, beyond the possible extension of the dividend reinvestment plan. The broker upgrades to Outperform from Neutral. Target is steady at $4.70.

CITY CHIC COLLECTIVE (CCX) was upgraded to Buy from Sell by Citi

Australian retail analysts at Citi have just released a 61-page tome on the sector, trying to assess the impact from the covid-19 fall-out in combination with a cheaper Aussie dollar and consumers stockpiling. As a general rule of thumb, earnings estimates have gone down by between -11%-19% for most non-food retailers, while groceries saw increases by 3%-5%. Share price valuations have now fallen to levels Citi suggests are looking “appealing”. As investors will now be eagle-eyed for any balance sheet risks, the analysts highlight balance sheet risks for the sector are limited given most retailers are well capitalised. City Chic has been upgraded to Buy from Sell.

COCA-COLA AMATIL (CCL) was upgraded to Neutral from Sell by UBS

Coca-Cola Amatil has withdrawn its 2020 and medium-term earnings guidance for mid single-digit growth, given the uncertainty around the duration and impact of coronavirus. In Australasia the company is experiencing strong growth in the grocery channel. Meanwhile in Indonesia foot traffic is down and volumes in Bali have been affected by the decline in tourism. At this stage, the company expects to avoid significant disruption to the supply chain. Morgan Stanley expects the business should prove relatively resilient over the medium term. Equal-weight. Target is $12.00. Cautious industry view.

COCHLEAR (COH) was upgraded to Neutral from Sell by Citi

The company has withdrawn FY20 guidance. The current load of coronavirus cases is expected to have a substantial short-term negative impact on cochlear implant surgery, particularly in the US and Western Europe. Moreover, adult cochlear implant candidates may have their surgery de-prioritised once the epidemic is over. On the encouraging side, China is experiencing a growing number of surgeries over the past few weeks. Citi points out the balance sheet is fine, but reduces FY20 estimates for earnings per share by -79%. At this stage, FY21 is unchanged. Target is reduced to $196 from $198 and the rating is upgraded to Neutral from Sell.

COLES GROUP (COL) was upgraded to Neutral from Sell by UBS

Sales in supermarkets have spiked, consistent with global trends. However, UBS notes, increased sales have come with increased costs through the supply chain, which limits the level of operating leverage that would normally be expected. The broker upgrades to Neutral from Sell and lifts estimates for earnings per share by 4-6% in FY20. Target is raised to $15.00 from $14.70. The broker suggests the coronavirus outbreak will embed new behaviours in consumers, potentially leading to an acceleration in the rate of online penetration and this is also likely to mean a return to cooking at home, at least in the near term.

CROWN RESORTS (CWN) was upgraded to Outperform from Neutral by Credit Suisse

Credit Suisse assumes the Melbourne and Perth domestic revenues take a sharp hit in the second half before recovering to pre-coronavirus levels during FY22. Estimates are reduced by -64% for FY20 and -27% for FY21. There is a risk as to whether the building site at Crown Sydney, slated to open at the end of 2020, is shut down to protect workers. Still, even if there is a delay, it may still allow the venue to open in time for Chinese New Year 2021. On depressed earnings, the leverage ratio rises to 2.0x FY20 but there are still untapped debt facilities. Credit Suisse assumes Crown Resorts forgoes declaring dividends in the second half and FY21. Rating is upgraded to Outperform from Neutral and the target reduced to $11 from $12.

FLIGHT CENTRE (FLT) was upgraded to Hold from Lighten by Ord Minnett and to Buy from Neutral by Citi

The decision to close 100 retail shops is the positive catalyst Ord Minnett was looking for, although this was overshadowed by the negative impact of coronavirus on the earnings outlook. While the uncertainty may drive share price movements in the near term, the broker believes shop closures will have a positive impact on earnings from FY21. Rating is upgraded to Hold from Lighten and the target is reduced to $21.54 from $25.49.

Australian retail analysts at Citi have just released a 61-page tome on the sector, trying to assess the impact from the COVID-19 fall-out in combination with a cheaper Aussie dollar and consumers stockpiling (See City Chic Collective upgrade above). Flight Centre has been upgraded to Buy from Neutral, while noting financial and operating leverage is relatively high for the business.

JB HI-FI (JBH) was upgraded to Accumulate from Hold by Ord Minnett and to Neutral from Sell by Citi

Ord Minnett considers the valuation attractive following the decline in the share price, especially given JB Hi-Fi’s track record. The stock is the best positioned among its peers and the broker upgrades to Accumulate from Hold. Target is $38. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.

Australian retail analysts at Citi have just released a 61-page tome on the sector, trying to assess the impact from the covid-19 fall-out in combination with a cheaper Aussie dollar and consumers stockpiling (See City Chic Collective upgrade above). JB Hi-Fi has been upgraded to Neutral from Sell.

METCASH (MTS) was upgraded to Buy from Neutral by UBS

Sales in supermarkets have spiked, consistent with global trends (See Coles upgrade above). The broker lifts estimates for earnings in FY20 by 4-6% and upgrades Metcash to Buy from Neutral. Target is raised to $2.90 from $2.80.

NATIONAL AUSTRALIA BANK (NAB) was upgraded to Overweight from Equal-weight by Morgan Stanley

Morgan Stanley believes the outlook for Australian banks has shifted materially, given the combination of lower rates, less pricing power and a potential loan loss cycle. The broker lowers FY21 estimates across the board by -10-18%. However, given the declines in share prices of more than -25%, the broker shifts its stance on the major banks to neutral from negative for the first time since September 2014. National Australia Bank is upgraded to Overweight from Equal-weight. Target is reduced to $19.50 from $25.50. Industry view: In-line.

NORTHERN STAR RESOURCES (NST) was upgraded to Buy from Hold by Ord Minnett

Ord Minnett upgrades to Buy from Hold, reducing the target to $13.50 from $14.00, amid a strong outlook for the US-dollar gold price and weak outlook for the Australian dollar. The company has confirmed that Pogo has turned the corner and operating metrics have reached an inflection point. The broker expects a strong performance from Jundee, Pogo and the Super Pit. However, Ord Minnett also notes gold equities have not provided the expected safe haven in the current climate as investors have sought liquidity.

PARADIGM BIOPHARMACEUTICAL (PAR) was upgraded to Hold from Reduce by Morgans

Paradigm Biopharmaceutical has fallen -70% since the market high which Morgans puts down to the virus but also the fact investors had overpriced the stock to unsustainable levels beforehand. While delays are not uncommon in the life sciences sector, recent lags to timelines have also added to investor concerns. Those timelines can only now be pushed out, the broker warns, given health regulators have other more pressing matters to deal with right now. The broker also remains concerned around Paradigm’s intellectual property and substitution risk given a number of alternative and novel treatments in the pipeline. Morgans upgrades to Hold from Reduce on the share price fall, but is not at this stage a buyer. Target unchanged at $2.16 with the warning this is one for speculative investors only.

PRO MEDICUS (PME) was upgraded to Buy from Neutral by UBS

UBS upgrades to Buy from Neutral as the valuation now appears less demanding. The broker suggests the company has a strong long-term growth outlook and its earnings are defensive under economic pressures derived from coronavirus. The balance sheet is net cash. No changes are made to earnings estimates or the target of $29.30.

PREMIER INVESTMENTS (PMV) was upgraded to Buy from Sell by Citi

Australian retail analysts at Citi have just released a 61-page tome on the sector, trying to assess the impact from the COVID-19 fall-out in combination with a cheaper Aussie dollar and consumers stockpiling (See City Chic Collective upgrade above). Premier Investments has been upgraded to Buy from Sell.

QANTAS AIRWAYS (QAN) was upgraded to Buy from Neutral by Citi

The earnings outlook is considerably uncertain as international capacity in the second half is reduced by -90% and domestic capacity by -60%. Citi models a U-shaped recovery, with demand and operating conditions bouncing back through FY21. The airline is expected to suspend the dividend in the second half in order to preserve the balance sheet. Given the slump in the share price and valuations, Citi upgrades to Buy/High Risk and reduces the target to $3.70 from $6.70. The broker envisages no material risks to the balance sheet.

SOUTH32 (S32) was upgraded to Outperform from Underperform by Macquarie

Macquarie upgrades to Outperform from Underperform, noting short-term earnings momentum has improved. The robust nature of the iron ore market continues to underpin earnings upgrade momentum for the major miners as well. Target is $2.20.

SUNCORP GROUP (SUN) was upgraded to Neutral from Underperform by Macquarie

Macquarie understands the general insurers have limited exposure to losses stemming from coronavirus. Following some concerns about the banking arm the broker incorporates -$400m in pre-tax impairment losses. However, value appears to be returning at current levels and Macquarie upgrades to Neutral from Underperform. Target is reduced to $9.80 from $11.30.

SYDNEY AIRPORT HOLDINGS (SYD) was upgraded to Neutral from Underperform by Credit Suisse

Sydney Airport has liquidity of more than $2bn, Credit Suisse notes. In the broker’s base-case scenario, it is assumed that Australia ends up with lockdowns and the airport is effectively closed for six weeks during 2020. In this instance, EBITDA interest coverage would fall to 2.2x and remain well above the likely debt covenants. Rating is upgraded to Neutral from Underperform. Target is lowered to $6.00 from $6.90.

TECHNOLOGYONE (TNE) was upgraded to Neutral from Sell by UBS

UBS upgrades to Neutral from Sell on valuation grounds. The broker considers the earnings relatively defensive under the deteriorating economic backdrop. That said, the stock is not considered cheap and the broker considers there are both quality issues and some near-term risks. No changes are made to earnings and the target of $7.25.

TREASURY WINE ESTATES (TWE) was upgraded to Buy from Neutral by UBS

UBS reduces estimates by -3-11%, now expecting a -3% decline in earnings (EBITS) in FY20 and 7% growth in FY21. Margins are likely to remain under pressure until the second half of FY21. Nevertheless, the broker upgrades to Buy from Neutral, with a view that the slump in the share price to date is overdone. Target is reduced to $15.40 from $18.00.

WOOLWORTHS (WOW) was upgraded to Buy from Neutral by UBS

Sales in supermarkets have spiked, consistent with global trends (See Coles upgrade above). The broker upgrades to Buy from Neutral and lifts estimates for earnings per share by 4-6% in FY20. Target is raised to $39.70 from $39.30.

XERO (XRO) was upgraded to Outperform from Neutral by Credit Suisse

Rating is upgraded to Outperform from Neutral. Target is steady at $80. In light of significant global headwinds, UBS believes revenue base is sustainable. In a longer-term period of macro weakness, the primary exposure is to small business conditions. The next catalyst will be the FY20 result on May 14.

In the not-so-good books

COOPER ENERGY (COE) was downgraded to Accumulate from Buy by Ord Minnett

Ord Minnett materially lowers oil price forecasts to US$42/bbl in 2020 and US$45/bbl in 2021 although, while spot oil prices suggest further downside risk, does not believe the US$30/bbl Brent price is sustainable. Overall, the energy sector is considered attractive for investors looking for long-term returns and companies with strong balance sheets and limited growth should be the priority, in the broker’s view. The broker downgrades to Accumulate from Buy and reduces the target to $0.60 from $0.64.

CARNARVON PETROLEUM (CVN) was downgraded to Hold from Buy by Ord Minnett

Ord Minnett materially lowers oil price forecasts (see Cooper Energy upgrade above). The broker downgrades to Hold from Buy, largely because its preferences are elsewhere. Target is reduced to $0.39 from $0.47.

OIL SEARCH (OSH) was downgraded to Hold from Accumulate by Ord Minnett

Ord Minnett materially lowers oil price forecasts (see Cooper Energy upgrade above). The broker downgrades to Hold from Accumulate, largely because of preferences elsewhere. Target is reduced to $3.65 from $7.20. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.

PROSPA GROUP (PGL) was downgraded to Neutral from Buy by UBS

UBS downgrades to Neutral from Buy because of revised forecasts stemming from the likely economic impact of coronavirus on Australian small-medium enterprises and an expected increase in non-performing loans that will drive higher impairment charges. Target is reduced to $0.90 from $3.05, reflecting material downgrades to FY20-22 earnings and heightened near-term risks to the balance sheet.

SENEX ENERGY (SXY) was downgraded to Accumulate from Buy by Ord Minnett

Ord Minnett materially lowers oil price forecasts (see Cooper Energy upgrade above). The broker downgrades to Accumulate from Buy and reduces the target to $0.34 from $0.38. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.

WORLEY (WOR) was downgraded to Hold from Buy by Ord Minnett

Ord Minnett materially lowers oil price forecasts (see Cooper Energy upgrade above). The broker believes the investment case for Worley has been challenged by the current situation and there is likely to be a material impact on earnings and valuation. Rating is downgraded to Hold from Buy and the target lowered to $8.30 from $17.60. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.

WOODSIDE PETROLEUM (WPL) was downgraded to Hold from Accumulate by Ord Minnett

Ord Minnett materially lowers oil price forecasts (see Cooper Energy upgrade above). Rating is downgraded to Hold from Accumulate, largely because of preferences elsewhere. Target is reduced to $24.00 from $40.20. This stock is not covered in-house by Ord Minnett. Instead, the broker white labels research by JP Morgan.

The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, 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.