In the good books

AUSTRALIAN PHARMACEUTICAL INDUSTRIES (API) was upgraded to Equal-weight from Underweight by Morgan Stanley

Morgan Stanley prefers stocks in the healthcare sector that have positive industry momentum as well as legacies from the pandemic. The broker upgrades Australian Pharmaceutical to Equal-weight from Underweight on a better valuation and more funding certainty. Target is raised to $1.25 from $1.04. Industry view is In-Line.

HASTINGS TECHNOLOGY METALS (HAS) was upgraded to Buy from Hold by Ord Minnett

Ord Minnett upgrades its rating to Speculative Buy from Hold with the target rising to $0.30 from $0.16. With permanent magnet raw materials prices rising 50% year to date, the rare earth thematic is firing, asserts the broker. Furthermore, project economics of the company has improved with further upside expected in operating costs and ore sorting.

JB HI-FI (JBH) was upgraded to Outperform from Neutral by Credit Suisse

Credit Suisse believes the market is too bearish regarding expenditure on the household goods sector. A permanent shift to working from home should provide a step change, in the broker’s view. On the basis of 30% of the Australian workforce working from home two days a week, the broker calculates a 4ppts direct and 3ppts indirect increase in furniture and electrical goods consumption. As JB Hi-Fi has a near debt-free balance sheet amid surplus franking credits, capital management is considered likely in FY21. Credit Suisse upgrades to Outperform from Neutral and raises the target to $53.02 from $50.62.

REGIS RESOURCES (RRL) was upgraded to Neutral from Underperform by Macquarie

The board has approved the development of a new underground mine below Garden Well pit. Macquarie incorporates the new resource into estimates, noting this is a continuation of the strategy to unlock higher-grade underground projects. The recent weakness in the stock price means the broker upgrades to Neutral from Underperform. Macquarie highlights approval and subsequent development of McPhillamys remain key to the outlook. Target is $3.90.

SIGMA HEALTHCARE (SIG) was upgraded to Equal-weight from Underweight by Morgan Stanley

Morgan Stanley prefers stocks in the healthcare sector that have positive industry momentum as well as legacies from the pandemic. The broker upgrades Sigma Healthcare to Equal-weight from Underweight because of better valuation and more funding certainty. In-Line industry view. Target is $0.60.

In the not-so-good books

AGL ENERGY (AGL) was downgraded to Sell from Neutral by UBS

UBS downgrades AGL Energy to Sell from Neutral with the target falling to $12.25 from $15.60. The downgrade is driven by margin pressure materially reducing the broker’s wholesale electricity price forecast. The push towards renewables coupled with the fact that about 90% of AGL Energy’s electricity generation comes from coal, the broker believes AGL’s earnings will decline by -12% CAGR over FY21-24.

APPEN (APX) was downgraded to Neutral from Buy by UBS

Appen has guided to second-half operating income of $57-60m, -23-27% below UBS’s estimates of $78m. While expecting higher risks to Appen’s FY20 guidance, the magnitude and timing of the downgrade surprised the broker. The company indicated a “reprioritisation” of resources away from mature projects and towards new product areas. USB believes this is primarily driven by covid and a return to normal will see the volume of work to mature projects resume. Even so, the broker adopts a cautious stance and downgrades its rating to Neutral from Buy with the target falling to $27.50 from $44.

ALUMINA (AWC) was downgraded to Hold from Accumulate by Ord Minnett

Ord Minnett has marked to market its forward-curve-based commodity forecasts with the result that prices of some key commodities like copper, iron ore and aluminium have been pegged 10-20% higher than the broker’s previous estimates. Going into 2021, the broker is positive on the mining sector in the post-covid era. Despite this, the recent rally in the share price of Alumina Ltd prompts Ord Minnett to downgrade its recommendation to Hold from Accumulate. A target of $2 is retained.

ESTIA HEALTH (EHE) was downgraded to Underweight from Equal-weight by Morgan Stanley

Negative earnings revisions have led to a reduction in the valuation of Estia Health across Morgan Stanley’s various scenarios. The broker suspects earnings will be challenged while the outcome of the Royal Commission is still uncertain. Rating is downgraded to Underweight from Equal-weight and the target is lowered to $1.50 from $1.60. In-Line industry view. 

NEARMAP (NEA) was downgraded to Neutral from Outperform by Macquarie

Reviewing Nearmap’s opportunity in the US, Macquarie considers scale to be the key consideration. The inability to scale fast enough poses the greatest risk to the broker’s investment thesis. Macquarie remains attracted to Nearmap’s technology, growing market opportunity and the ability to leverage efficiencies from an enhanced capture program. Having said that the broker also notes a continued rotation to value/cyclicals could restrict near-term outperformance. Macquarie downgrades its rating to Neutral from Outperform with the target price falling to $2.40 from $3.20.

QBE INSURANCE (QBE) was downgraded to Neutral from Buy by UBS

UBS notes while QBE Insurance has upside leverage to a strong premium rate environment, the group is also exposed to elevated claims currently. Even with positive headline premium rates, the earnings benefit is less clear to the broker with the gross written premium likely to lag premium rate increases in the near-term.  On January 1, 2021, QBE Insurance has a major reinsurance renewal which could lead to a sizeable margin headwind. UBS downgrades its rating to Neutral from Buy. Target falls to $10.50 from $12.

VIRTUS HEALTH (VRT) was downgraded to Underweight from Equal-weight by Morgan Stanley 

Virtus Health is trading ahead of Morgan Stanley’s target which leads to a downgrade to Underweight from Equal-weight. The broker remains cautious about the longer-term shift to lower-priced IVF services within the business. Target is raised to $4.90 from $4.00. Industry view is In-Line.

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.