A hesitant local share market continues to find support from stockbroking analysts who issued more than twice as many upgrades than downgrades last week.

Changes to price targets and valuations remained rather mute, given the February reporting season already has inflicted major amendments to forecasts.

All in all, it appears underlying profit growth forecasts are trending lower, but it’s happening at avalanche speed. And the balance in ratings upgrades and downgrades suggests there’s still value to be found.

In the good books

INTEGRAL DIAGNOSTICS LIMITED (IDX) was upgraded to Buy from Hold by Ord Minnett. B/H/S: 1/0/1.  Capitol Health (CAJ) will not be increasing or extending the takeover bid for Integral Diagnostics and the offer is now expected to lapse. The outcome was increasingly apparent to Ord Minnett given an acrimonious relationship between the companies and some key shareholders. The broker considers each business positively on a standalone basis. Both are trading at discounts to health care peers, which Ord Minnett considers unjustified given the avenues to growth. Rating is upgraded to Buy from Hold and the target is $2.39.

SOUTH32 LIMITED (S32) was upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 0/3/4. Credit Suisse has increased its price expectations for aluminium, up 7-22% for the period to 2021. Copper forecasts for 2018 have also been upgraded by 17%. Metallurgical coal estimates are up 12% for 2018. Given the pull back in the shares since January, South32’s valuation appears more compelling and the broker upgrades to Neutral from Underperform. Target is steady at $3.30. Operating performance and corporate activity could also likely be key near-term value drivers.

WESFARMERS LIMITED (WES) was upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 2/5/1.  Credit Suisse makes a relative value call based on upgrade to valuation of Bunnings Australasia and on the probability that the underperformance of Bunnings UK and Ireland will be dealt with in the next six months.  On this basis the broker upgrades to Outperform from Neutral and raises the target to $44.98 from $40.65. The broker also believes the market has become too negative on Coles.

In the not-so-good books

INGHAMS GROUP LIMITED (ING) was downgraded to Neutral from Buy by UBS. B/H/S: 3/3/0. The stock has outperformed the market by around 12% over the last month, UBS observes. While believing a long-term opportunity exists, the broker downgrades to Neutral from Buy on valuation grounds. Recent industry feedback suggests pressure in the frozen poultry category share and a re-basing of industry volumes. Cost reductions will help offset these pressures, UBS acknowledges, but risks in the short term are on the downside. Target is $3.70.

OZ MINERALS LIMITED (OZL) was downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 2/4/1.  Credit Suisse has increased copper price assumptions, raising the 2018 estimate to US$3.09/lb and the first half 2019 estimate to US$2.60/lb. Despite increased earnings and valuation the broker still considers OZ Minerals expensive.  Rating is downgraded to Underperform from Neutral. Target is raised to $8.55 from $8.25.

SANDFIRE RESOURCES NL (SFR) was downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 1/3/2.  Credit Suisse has increased copper price assumptions (see above) but despite increased earnings and valuation the broker still considers Sandfire Resources expensive. Target is raised to $6.10 from $5.60.

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.

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