Clearly, with the share market recovering from early calendar year weakness, stockbroking analysts are seeing fewer reasons to upgrade to (an equivalent of) Buy ratings. In total numbers, FNArena registered six upgrades and four downgrades for individual ASX-listed stocks.
The week saw some hefty increases to earnings expectations, with Senex Energy claiming top spot, followed by Alumina ltd, Beach Energy, AWE ltd, Newcrest Mining, and Boral.
Reductions to earnings estimates are equally eye-catching, with Galaxy Resources suffering most, followed by Village Roadshow, Western Areas, G8 Education, Fortescue Metals, and Orocobre.
The week ahead sees local reporting season heat up with more banks releasing financial results while resources stocks are releasing quarterly production updates.
In the good books
HEALTHSCOPE LIMITED (HSO) was upgraded to Neutral from Underperform by Credit Suisse and to Equal-weight from Underweight by Morgan Stanley. B/H/S: 1/6/0. In the wake of a conditional private equity takeover bid for Healthscope at a 16% premium, Credit Suisse increases its target to $2.36 from $1.78 to match the bid and upgrades to Neutral from Underperform. The small control premium reflects challenging market conditions, the broker suggests. Credit Suisse now awaits an assessment from the board, completion of due diligence and regulatory approval, notwithstanding the potential of a counter bid.
Morgan Stanley notes the near-term fundamentals will now take a back seat and the takeover premium will remain in the shares. The broker considers the near-term outlook remains challenged but there are options in the business to unlock value. Rating is upgraded to Equal-weight from Underweight. Target is raised to $2.36 from $1.67. Industry view is In-Line.
See also HSO downgrade.
NEWCREST MINING LIMITED (NCM) was upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 2/4/2. Cadia had been recovering strongly, Credit Suisse notes, but slumped in the March quarter. Lihir delivered to expectation and a stronger copper price helped to reduce costs. The broker has made negligible changes to forecasts but has increased its target to $19.95 from $18.50, as a result of de-risking its Wafi-Golpu valuation to 75% from 50%. This triggers an upgrade to Neutral from Outperform.
WOODSIDE PETROLEUM LIMITED (WPL) was upgraded to Neutral from Underperform by Macquarie. B/H/S: 2/5/1. Given bullish sentiment for the remainder of 2018, and increased forecasts for oil prices, Macquarie upgrades to Neutral from Underperform. Brent oil forecasts are raised by 20% to US$70/bbl for 2018 and by 5% to US$57/bbl for 2019. The broker’s target is raised to $31.90 from $28.10. Macquarie continues to expect 2019 will be in oversupply, resulting in a build up of global oil stocks because of the return of OPEC volumes and sustained US production growth.
In the not-so-good books
HEALTHSCOPE LIMITED (HSO) was downgraded to Hold from Add by Morgans. B/H/S: 1/6/0. The company has received a cash takeover bid of $2.36 a share from a consortium, which includes majority shareholder AustralianSuper. Morgans would be surprised if another bidder jumped in to sweeten the deal, given there are a number of issues such as slowing utilisation, health fund price indexation and government policies. If anything, the broker does not rule out the possibility the bid is reduced. Rating is downgraded to Hold from Add as a result. Target is $2.42.
See also HSO upgrade.
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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