In the good books

BHP (BHP) was upgraded to Buy from Neutral by Citi. B/H/S – 5/3/0. Citi has upgraded to Buy from Neutral with a higher price target, $33 versus $32 prior, on the realisation the company’s shale assets, which are up for divestment, might catch a higher price than previously thought. On Citi’s present calculations, based upon recent transactions inside the US shale industry, BHP’s shale assets might attract US$14bn instead of US$10bn, while global upheaval due to rising risks from economic protectionism are believed to be overdone.

Carsales.com (CAR) was upgraded to Neutral from Underperform by Credit Suisse. B/H/S – 2/5/1. The share price has been under pressure recently, and we can blame Morgan Stanley analysts for scaring investors about potential competition impact that was purely theoretical, and Credit Suisse has now decided it’s opportune to raise its recommendation to Neutral from Underperform. Some minor adjustments have been made to the broker’s modelling, but nothing to impact on valuation or price target, which remains unchanged at $13.50.

CSL (CSL) was upgraded to Buy from Neutral by UBS. B/H/S – 5/2/0. UBS has re-modelled earnings drivers for CSL and transferred lead analyst coverage. The broker shifts to DCF-based valuation methodology. A three-year compound growth rate for earnings per share of 16% is forecast. The valuation implies a premium to the company’s historical average relative to the market but UBS believes current plasma industry conditions are favourable. Target is raised to $175 from $155.

Perseus Mining (PRU) was upgraded to Buy from Neutral by UBS. B/H/S – 3/1/0. UBS believes the company may have turned the corner and upgrades to Buy from Neutral. Operating consistency is now being achieved at Edikan, Sissingue is being delivered on time and on budget and the outlook is de-risking. As the company is offering growth through a third development at Yaoure, UBS believes the market could eventually re-rate the stock and potentially capture a gold premium. Target is raised to $0.55 from $0.33.

South 32 (S32) was upgraded to Neutral from Sell by Citi. B/H/S – 1/4/2. South32 has been upgraded to Neutral from Sell, with a reduced price target; $3.40 versus $3.50 prior. Previously, Citi analysts were worried about the direction of manganese prices, but they have now concluded risk is to the upside. Also, the analysts note cash flow generation remains strong to fund opportunities and the early stage projects that S32 has invested in, keeping potential for ongoing returns to shareholders alive.

In the not-so-good books

G8 Education (GEM) was downgraded to Equal-weight from Overweight by Morgan Stanley. B/H/S – 3/3/0. Morgan Stanley has reduced occupancy forecasts for 2018 to 77.7% from 78.8% and for 2019 to 79.0% from 80.5%. This results in a 4-5% reduction to revenue forecasts. While the valuation remains undemanding the broker envisages few catalysts in 2018. Rating is downgraded to Equal-weight from Overweight. Target is reduced to $2.80 from $4.25. Industry view is In-Line.

GWA Group (GWA) was downgraded to Hold from Add by Morgans. B/H/S – 1/4/0. Management intends to divest its door & access systems business. Morgans values this business at $45-65m. The company maintains a strong balance sheet, which could provide capital management initiatives such as a share buyback or special dividend, in the broker’s opinion. While the broker expects earnings growth to be broadly flat over the next few years the stock offers a 5.2% fully franked yield with upside from capital management initiatives post the sale of this business. Rating is downgraded to Hold from Add as the share price is now trading above the target price of $3.30.

Resmed (RMD) was downgraded to Neutral from Buy by Citi. B/H/S – 3/3/1. The share price has performed well and on Citi’s observation this has pushed valuation to a 30% premium versus the five years trading average. Too expensive conclude the analysts and they have pulled back their rating to Neutral from Buy. In addition, Citi analysts seem a bit worried that new mask launches by competitors Philips Electronics and Fisher & Paykel Healthcare (FPH) will tighten competition in the high margin mask sector, which might weigh upon forward growth rates for ResMed. Target untouched at $13.60.

The above was compiled from reports on FN Arena. 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 regards to your circumstances.