And while this Grand Bear Market for global equities continues dragging share prices down, stockbroking analysts keep upgrading recommendations for individual ASX-listed stocks at a frantic pace.

For the first time in a long while, total Buy recommendations for the seven stockbrokers combined that are monitored daily by FNArena now represent the largest group, outpacing the Neutral/Holds 45.21% versus 42.85%, with the remaining 11.95% on Sell.

It has been a long while since Neutral/Hold recommendations no longer represent the largest group of recommendations, but then the Bull market upswing coming out of the brief Bear Market of late 2018 had been strong and elongated. Now the Bear Market that has followed that Bull Market upswing has been quick, ruthless, and savage.

It ain’t over until the Fat Lady sings and on that account, I am listening with intense focus, only to find it’s eerily quiet out there.

For the week ending Friday, 23rd March 2020, FNArena registered no less than 53 upgrades in recommendations for individual stocks versus 12 downgrades.

Among those many upgrades are multiple stocks that received multiple upgrades, including Beach Energy, BHP Group, Boral, Flight Centre, JB Hi-Fi, National Australia Bank, Ramsay Health Care, and REA Group. Only fourteen out the 53 upgrades didn’t move beyond Neutral/Hold.

So which are the twelve stocks that still received a downgrade (mostly to Hold/Neutral, only Oil Search received one fresh Sell rating)? They are Carnarvon Petroleum, Cooper Energy, GUD Holdings, Lovisa Holdings, Oil Search, Premier Investments, Prospa Group, Senex Energy, Woodside Petroleum, and Worley.

The 2020 Grand Bear Market continues in the weeks, most likely months ahead.

In the good books

AUSTRALIA & NEW ZEALAND BANKING GROUP (ANZ) was upgraded to Outperform from Neutral by Credit Suisse B/H/S: 3/3/1

Credit Suisse lowers estimates, increasing bad debt provisions and allowing for a peak in the second half of FY20. The broker also incorporates additional margin impact from the announcements from the Reserve Bank, although these are less than originally feared given the introduction of a term funding facility. Dividend forecasts are reduced by -10%. The broker upgrades to Outperform from Neutral and reduces the target to $22.80 from $24.50.

 

AFTERPAY LIMITED (APT) was upgraded to Neutral from Sell by UBS B/H/S: 5/1/0

Following the savage drop in the share price, UBS upgrades to Neutral from Sell. The broker asserts the strong equity funding and high receivables turnover mean the near-term funding risks are low. The broker believes investors should reconsider longer-term growth assumptions. With higher customer defaults there is the likelihood of an impairment to the longer-term outlook because such customers cannot use the platform again. Therefore longer-term customer assumptions are lowered to 18m by FY25, from 22.5m. Target is reduced to $13.20 from $17.90.

APPEN LIMITED (APX) was upgraded to Outperform from Neutral by Credit Suisse B/H/S: 3/0/0

Credit Suisse upgrades to Outperform from Neutral. The broker expects the company’s performance in the June half year will be strong. Thereafter, sales and margins may be negatively affected in a period of economic weakness as customer performance slows. Forecasts are reduced to reflect this. Rating is upgraded to Outperform from Neutral. Target is reduced to $22 from $27.

BORAL LIMITED (BLD) was upgraded to Buy from Neutral by Citi B/H/S: 3/2/0

Boral shares have fallen -53% year to date compared to -28% for the index on soft domestic construction and balance sheet concerns, Citi notes. While the virus will derail US housing construction in the June quarter, stimulus measures should enable a strong rebound. The shares are now trading below GFC lows. Citi believes balance sheet fears are overblown, and, on current valuation, investors are effectively getting the USG-Boral and NAM business for free. Guidance has been withdrawn despite demand deterioration yet to be seen, except in China, which is now recovering. Management is nonetheless ready for the drop-off. The broker cuts its target to $3.00 from $4.80 and upgrades to Buy from Neutral.

BEACH ENERGY LIMITED (BPT) was upgraded to Equal-weight from Underweight by Morgan Stanley B/H/S: 4/2/0

Morgan Stanley lowers the long-term oil forecast, to US$45/bbl and believes, if this becomes the case, it creates serious risk for Australian energy companies. While the broker acknowledges the market will debate long-term value, the downward pressure appears assured. There is a risk oil prices could jump once the coronavirus crisis settles down, but this will depend on whether the price war waged by OPEC and Russia is temporary or structural. The broker notes these two countries have over 20% of global supply and access to cheap reserves. Rating for Beach Energy is upgraded to Equal-weight from Underweight. Target is reduced to $1.24 from $2.00. Industry view has changed to Cautious from In-Line.

BREVILLE GROUP LIMITED (BRG) was upgraded to Outperform from Neutral by Macquarie B/H/S: 2/2/0

Macquarie assumes small retailer revenues will be severely impacted and very low earnings visibility is the near term reality. The broker is focused on balance sheets, cashflow and the ability to trade though the crisis. Share price falls to date suggest investors are acutely aware containment measures will have a negative economic impact. The broker is recommending selective exposure as a recovery will be fast when it happens. Stimulus, rent holidays and any clarity are positive catalysts. Breville Group upgraded to Outperform from Neutral as it is considered a high quality company with lower liquidity risk as it has no stores of its own. Target falls to $16.00 from $25.14.

COMMONWEALTH BANK OF AUSTRALIA (CBA) was upgraded to Hold from Reduce by Morgans B/H/S: 0/3/3

Morgans downgrades cash earnings and dividend forecasts for all four major banks as a result of expectations for lower net interest margins, lower credit growth and a deterioration in asset quality. The broker believes Commonwealth Bank and Westpac (WBC) are most defensively positioned because their loan books are more skewed to Australian home lending. The broker upgrades Commonwealth Bank to Hold from Reduce and lowers the target to $67 from $74.

DOMAIN HOLDINGS AUSTRALIA LIMITED (DHG) was upgraded to Outperform from Underperform by Credit Suisse B/H/S: 5/0/1

Credit Suisse makes downgrades to near-term earnings forecasts to reflect lower listings volumes. While there is limited visibility on the impact for the near term, this effectively factors in a -35% decline in volumes in the June quarter. The broker upgrades to Outperform from Underperform, believing the stock has fallen too far and now factors in a more permanent structural decline in listings. Target is reduced to $2.50 from $2.70.

EVOLUTION MINING LIMITED (EVN) was upgraded to Outperform from Neutral by Macquarie B/H/S: 4/3/0

Macquarie considers gold to be above forecasts at current price levels of US$1510/oz, offering earnings upside over FY20 and FY21 respectively. Evolution Mining is trading at a premium to the real weighted average cost of capital and has the least cost of production among the large producers, notes Macquarie. Rating upgraded from Neutral to Outperform with target price at $3.80.

ILUKA RESOURCES LIMITED (ILU) was upgraded to Outperform from Neutral by Credit Suisse B/H/S: 2/3/0

Credit Suisse believes the company has several upcoming catalysts which warrant re-consideration in the current context. The MAC royalty spin-off is expected to put a floor under the share price. While the business is not immune to the prevailing uncertainty, the broker’s rating is upgraded to Outperform from Neutral on a 12-month view. Zircon demand is expected to be soft for another six months, but the supply side should tighten considerably over the next 1-3 years, the broker adds. Target is unchanged at $10.

MIRVAC GROUP (MGR) was upgraded to Outperform from Neutral by Credit Suisse B/H/S: 4/2/0

Credit Suisse upgrades to Outperform from Neutral. At this point, the broker remains attracted to the strong balance sheet and the quality investment portfolio as well as the diversified exposure. The company has withdrawn FY20 guidance because of the uncertainty but Credit Suisse believes any earnings risks are cyclical, not structural. Target is reduced to $2.76 from $3.26.

MEDIBANK PRIVATE LIMITED (MPL) was upgraded to Outperform from Underperform by Credit Suisse B/H/S: 1/4/1

While hesitant to alter earnings, Credit Suisse is increasingly confident there will be a claims holiday for the private health industry in coming months. A pulling forward of health insurance claims in the June quarter has potential to deliver a significant benefit to the insurers. This will be partially offset by investment income and elevated international insurance claims. The broker notes the stock is underperformed the market by -15% over the nine months to March and then has outperformed. Rating is upgraded to Outperform from Underperform. Target is raised to $3.00 from $2.80.

NATIONAL AUSTRALIA BANK LIMITED (NAB) was upgraded to Outperform from Underperform by Credit Suisse B/H/S: 4/3/0

Credit Suisse lowers earnings estimates and allows for an increase in bad debts. The broker also incorporates additional margin impact from the Reserve Bank’s announcements, which is less than originally feared given the term funding facility. Dividend forecasts are reduced by -10%. Credit Suisse upgrades to Outperform from Underperform and reduces the target to $19.50 from $22.90.

NEWCREST MINING LIMITED (NCM) was upgraded to Neutral from Underperform by Macquarie B/H/S: 1/5/1

Macquarie considers gold to be above forecasts at current price levels of US$1510/oz, offering earnings upside over FY20 and FY21 respectively. Newcrest Mining is trading at a premium due to lower cost of production and is an attractive option for global investors desiring liquid exposure to gold.  Rating upgraded to Neutral from Underperform with target price increased to $22 from $20.

OCEANAGOLD CORPORATION (OGC) was upgraded to Outperform from Neutral by Macquarie B/H/S: 5/0/0

Gold at current price levels of US$1510/oz is considered to be above forecasts, states Macquarie, offering earnings upside over FY20 and FY21 respectively. Improvements in production at Haile and construction of the Martha underground at Waihi would likely see production growth in 2020 and 2021, states Macquarie, along with the renewal of Didipio’s FTAA being a key potential catalyst. Rating for OceanaGold upgraded to Outperform from Neutral with target price at $3.00.

REA GROUP LIMITED (REA) was upgraded to Outperform from Underperform by Credit Suisse to Hold from Reduce by Morgans B/H/S: 3/2/0

The company has withdrawn guidance. Credit Suisse suggests this reflects a lack of visibility in the June quarter. However pent-up supply is expected to return in FY21. The company has also delayed the timing of contracted price increases in the residential business. Credit Suisse upgrades to Outperform from Underperform to reflect expectations that volumes will recover and the company’s strong position in property classifieds. Target is reduced to $94.80 from $100.20.

The company has reduced earnings expectations for FY20, abandoning the likelihood of a strong rebound in premium ad volumes in the current half. An automatic price rise of around 8% has also been postponed. Morgans downgrades forecasts to reflect this. The company believes predicting advertising volumes is now impossible. The balance sheet is clean, the broker notes, and there is no refinancing risk so the business should rebound strongly once the crisis has passed. As the stock is close to valuation, Morgans upgrades to Hold from Reduce. Target is reduced to $86.93 from $89.93.

RAMSAY HEALTH CARE LIMITED (RHC) was upgraded to Buy from Neutral by Citi, to Outperform from Neutral by Credit Suisse and to Accumulate from Hold by Ord Minnett B/H/S: 4/2/1

The company has withdrawn FY20 earnings guidance. Citi considers the debt position strong and, at the other end of this crisis, the relative value of hospital infrastructure will be enhanced. Given the uncertain nature of the crisis, earnings estimates are unchanged. Yet, as a result of the decline in the share price and the low level of valuation sensitivity to a one-off earnings hit, the broker upgrades to Buy from Neutral. Target is $75.

FY20 earnings guidance has been withdrawn. Credit Suisse believes the deferral of elective surgeries globally is imminent. However the company will obtain more medical work as public hospital capacity becomes stretched. The broker reduces estimates for earnings per share by -2% for FY20 and lowers operating earnings margins in Australia by -20 basis points. Rating is upgraded to Outperform from Neutral, given a more positive longer-term outlook. Target is reduced to $70 from $73.

Ramsay Health Care has withdrawn guidance. Ord Minnett reduces estimates for revenue and margins across the global operations to reflect the postponement of elective surgery and a lift in labour costs. Still, beyond the current crisis, the broker considers the company’s hospital portfolio an attractive asset, given the rising health needs of ageing populations. The weakness presents an opportunity to build a position and the rating is upgraded to Accumulate from Hold. Target is lowered to $63 from $74.

REGIS RESOURCES LIMITED (RRL) was upgraded to Outperform from Underperform by Macquarie B/H/S: 5/2/0

Macquarie considers gold to be above forecast at current price levels of US$1510/oz and offering earnings upside over FY20 and FY21 respectively. With the AUD gold price nearing all-time highs, the broker indicates a robust earnings outlook for Australian producers. The current equity pull-back offers a chance for value-seeking investors to upgrade, points the broker, with balance sheets of most companies in good shape.  Regis Resources offers low-cost production, has paid dividends consistently and offers an upside in production potential at the Duketon operations, believes Macquarie. Rating upgraded to Outperform from Underperform with target price at $3.60.

RESOLUTE MINING LIMITED (RSG) was upgraded to Outperform from Neutral by Macquarie B/H/S: 2/0/0

Macquarie considers gold to be above forecasts at current price levels of US$1510/oz, offering earnings upside over FY20 and FY21 respectively.  The broker is cautious about balance sheet risks for Resolute Mining with the firm trying to refinance debt but believes the risk is outweighed by the production and earnings growth expected from the Syama underground project.   Rating upgraded to Outperform from Neutral with target price at $0.80.

ST BARBARA LIMITED (SBM) was upgraded to Outperform from Neutral by Macquarie B/H/S: 3/1/0

Even at US$1510/oz, Macquarie considers gold to be above forecasts at current price levels, offering earnings upside over FY20 and FY21 respectively. Short-term catalysts for St. Barbara include completion of the final Raisebore at Gwalia and the ramp-up of the Extension Project, notes Macquarie. Rating upgraded to Outperform from Neutral with target price at $2.00.

SILVER LAKE RESOURCES LIMITED (SLR) Outperform from Neutral by Macquarie B/H/S: 1/0/0

Even at US$1510/oz, Macquarie considers gold to be above forecasts and offer earnings upside over FY20 and FY21 respectively. Rating for Silver Lake Resources maintained at Outperform with target price at $1.60.

In the not-so-good books

G.U.D. HOLDINGS LIMITED (GUD) was downgraded to Hold from Accumulate by Ord Minnett B/H/S: 0/5/0

GUD Holdings has outperformed the S&P/ASX small industrials index, amid a perceived defensive sales profile and strong cash generation. Yet, Ord Minnett notes the manufacturing base is largely in China and the significant deterioration in the Australian dollar is yet to be priced in. The broker appreciates there could be a number of mitigating factors but downgrades to Hold from Accumulate and awaits more clarity around margins. Target is reduced to $9.50 from $12.50.

LOVISA HOLDINGS LIMITED (LOV) was downgraded to Neutral from Outperform by Macquarie B/H/S: 2/2/0

Macquarie assumes small retailer revenues will be severely impacted and very low earnings visibility is the near-term reality. The broker is focused on balance sheets, cashflow and the ability to trade though the crisis. Share price falls to date suggest investors are acutely aware containment measures will have a negative economic impact. The broker is recommending selective exposure as a recovery will be fast when it happens. Stimulus, rent holidays and any clarity are positive catalysts. Longer term the broker remains comfortable with Lovisa’s structural growth story. For now, downgrade to Neutral from Outperform. Target falls to $5.80 from $13.50.

OIL SEARCH LIMITED (OSH) was downgraded to Equal-weight from Overweight by Morgan Stanley and to Underperform from Neutral by Credit Suisse B/H/S: 2/4/1

Morgan Stanley lowers the long-term oil forecast, to US$45/bbl and believes, if this becomes the case, it creates serious risk for Australian energy companies. While the broker acknowledges the market will debate long-term value, the downward pressure appears assured. There is a risk oil prices could jump once the coronavirus crisis settles down, but this will depend on whether the price war waged by OPEC and Russia is temporary or structural. The broker notes these two countries have over 20% of global supply and access to cheap reserves. The broker’s industry view is changed to Cautious from In-Line. Oil Search is downgraded to Equal-weight from Overweight and the target lowered to $3.10 from $7.80.

Amid further risk to growth prospects, Credit Suisse downgrades to Underperform from Neutral. The broker suspects oil prices may get worse before they get better, leaving Oil Search most exposed, as its balance sheet and cost base is less favourable compared with its peers. Notwithstanding the fact long-term fundamentals could be supportive, the broker suspects some operators in the market may shift out of the stock based on balance sheet metrics. Target is reduced to $2.23 from $3.34.

PREMIER INVESTMENTS LIMITED (PMV) was downgraded to Neutral from Outperform by Macquarie B/H/S: 3/2/0

Macquarie assumes small retailer revenues will be severely impacted and very low earnings visibility is the near term reality. The broker is focused on balance sheets, cashflow and the ability to trade though the crisis. Share price falls to date suggest investors are acutely aware containment measures will have a negative economic impact. The broker is recommending selective exposure as a recovery will be fast when it happens. Stimulus, rent holidays and any clarity are positive catalysts. Longer term, the broker remains comfortable with Premier Investments’ structural growth story. For now, downgrade to Neutral from Outperform. Target falls to $11.71 from $20.00.

Earnings forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stockbrokers: 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.