In the good books

APA Group (APA) was upgraded to Outperform from Neutral by Macquarie. B/H/S – 4/2/2. Macquarie upgrades earnings estimates for FY18 by 1.8% and FY19 by 2.8%. The broker believes the drag from the regulatory threat has run its course. The regulator risk discount is removed and the broker believes the US is emerging as an attractive growth option. Rating is upgraded to Outperform from Neutral. Target is raised 11% to $8.67.

Domino’s Pizza (DMP) was upgraded to Add from Hold by Morgans.  B/H/S – 3/4/1. Morgans continues to believe that 20% net profit growth in FY18 will be a tall order, although any miss is likely to be modest. The broker expects the company can deliver around 15% net profit growth per annum over the next 3-5 years. The broker also notes potential upside from further acquisitions and suspects the company will not launch a new category/territory without material accretion being on the cards. Target is raised to $51.51 from $50.39.

In the not-so-good books

AMP was downgraded to Hold from Accumulate by Ord Minnett. B/H/S – 3/4/1. The Productivity Commission has published a draft report assessing the superannuation system and recommending a radical overhaul. On balance, the broker believes the report’s major proposals pose a threat to the retail sector, to both corporate super and fees on choice products. This leads the broker to downgrade its recommendation and the target is reduced to $4.20 from $4.84. (Ord Minnett. whitelabels research by JP Morgan.)

REA Group (REA) was downgraded to Underperform from Neutral by Macquarie. B/H/S – 2/4/2. Macquarie considers the valuation stretched at current levels and downgrades to Underperform from Neutral. While operating momentum is strong, the broker envisages a risk that future growth in earnings will be absorbed by a relative de-rating. Listing volumes are down moderately, the broker observes, but price/mix remain the key drivers of the stock. Target is raised to $86 from $74 after the rolling forward of valuation.

Stockland Corporation (SGP) was downgraded to Sell from Neutral by UBS. B/H/S – 4/2/1. UBS expects house prices will fall by 5% or more in 2019 as lending standards tighten and higher living expenses limit borrowing capacity. The broker downgrades Stockland FY20 and FY21 earnings estimates by -3% and -8% respectively on lower residential settlements. Target is reduced to $4.08 from $4.20.

Wesfarmers (WES) was downgraded to Sell from Neutral by Citi.  B/H/S – 1/4/2. Wesfarmers has announced the sale of Bunnings UK and Ireland. The 24 Bunnings pilot stores will revert to the Homebase brand following completion of the transaction. While the acquisition was a poor one, Citi observes the costs of exit are much better than expected and remove a risk hanging over the stock, improving the balance sheet. Following recent share price appreciation, Citi downgrades to Sell from Neutral. Target lifts to $41.50 from $40.10.

 

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.

 

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