There have been 7 upgrades and 5 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Abacus Property Group (ABP) was upgraded to Buy from Neutral by CitiA general update on listed property managers on the ASX has provided analysts at Citi with the opportunity to reiterate their sector preference for fund managers and leverage to residential assets.
Also, the analysts highlight the key downside risk for stocks in the sector is a rise in cap rates, not bond yields, with cap rates unlikely to cause any problems in 2022.
Citi has upgraded Abacus Property Group to Buy from Neutral with a revised target price of $4.05.
Cochlear Limited (COH) was upgraded to Outperform from Neutral by Credit Suisse
Credit Suisse upgrades its rating for Cochlear to Outperform from Neutral on valuation grounds. While the stock is back trading at pre-covid levels, the company’s market share of 60% is expected to be maintained in FY22, up from 53% in FY19.
Ahead of 1H results, the analyst sees a low risk to FY22 earnings guidance and conservatively forecasts FY22 profit of $270m versus guidance for $265m-$285m. The $235 target price is unchanged.
Dexus Industria REIT (DXI) was upgraded to Outperform from Neutral by Macquarie
Macquarie upgrades its rating for Dexus Industria REIT to Outperform from Neutral and increases its target price to $3.49 from $3.40 after reviewing its investment thesis.
As well as exposure to a favourable sub-sector, there are growth avenues for funds from operations (FFO), according to the analyst. This includes developments and the lease-up of Rhodes Business Park (around 10% of income at the June 2021 result).
Dexus (DXS) was upgraded to Neutral from Sell by Citi
A general update on listed property managers on the ASX has provided analysts at Citi with the opportunity to reiterate their sector preference for fund managers and leverage to residential assets.
Also, the analysts highlight the key downside risk for stocks in the sector is a rise in cap rates, not bond yields, with cap rates unlikely to cause any problems in 2022.
Dexus has been upgraded to Neutral from Sell as the report suggests things aren’t as bad for office properties as is feared by many. Price target $10.85.
Lendlease Group (LLC) was upgraded to Outperform from Neutral by Macquarie
Macquarie predicts slowing economic growth to be a positive for the REIT sector over 2022, with a flight to defensive asset classes. Within the sector, Office is expected to provide upside surprises while the broker remains cautious on both Retail and Residential.
Macquarie predicts a re-rate for Lendlease the closer FY24 earnings estimates approach actuality, and lifts its rating to Outperform from Neutral. The target price rises by 6% to $12.64.
Regarding upcoming results, the broker forecasts 1H22 operating earnings of $65m. A strong 2H skew means the 1H represents around 25% of the analyst’s full year earnings estimates.
Pro Medicus Limited (PME) was upgraded to Add from Hold by Morgans
After a -30% fall in share price over the last 30 days, the valuation for Pro Medicus is now -20% below Morgans estimate. The broker raises its rating to Add from Hold and sees the current price as a good entry for long-term investors.
That being said, the analyst notes further volatility may ensue with declining sentiment for high growth stocks and the company yet to report first half results. The target price of $54.49 is maintained.
Resmed Inc (RMD) was upgraded to Buy from Hold by Ord Minnett
ResMed has been upgraded to Buy from Hold as Ord Minnett anticipates FY22 will mark another strong performance for the company as it takes full advantage of competitor Philips’ product recall woes.
The broker anticipates supply chain limitations will be resolved and remains confident ResMed has both the product range and sales force to ensure it holds onto material market share gains once Philips gets its act together again.
Target price rises to $37.90 from $36. Small cuts have been made to forecasts in recognition of ongoing supply chain challenges in the short term.
This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.
In the not-so-good books
29Metals Limited (29M) was downgraded to Neutral from Outperform by Credit Suisse
Following December quarter results, Credit Suisse downgrades its rating for 29Metals to Neutral from Outperform and lowers its target price to $2.75 from $3.40.
Production was a beat for the quarter versus the analyst’s estimate for Capricorn Copper. However, there was disappointing overall FY22 guidance due to permit delays, wet weather and production challenges. The broker also incorporates higher FY23 costs into the forecast.
Adairs Limited (ADH) was downgraded to Hold from Accumulate by Ord Minnett
Adairs interim financials update showed a company impacted by store closures, in the view of Ord Minnett. Plus there was negative impact from supply chain costs and higher advertising spend.
The first impact might be one-off, the latter two are not, in the broker’s view.
Given higher uncertainty also including a possible moderation in customer traffic to stores in the second half, Ord Minnett has decided to downgrade to Hold from Accumulate.
Price target falls to $3.90 from $4.10 on reduced forecasts.
Charter Hall Group (CHC) was downgraded to Equal-weight from Overweight by Morgan Stanley
Morgan Stanley downgrades its rating for Charter Hall Group to Equal-weight from Overweight as record inflows and strong upward revaluations may subside as global bond yields continue to rise.
The company’s price earnings multiple traditionally has a strong correlation with the 10-year Australian bond yield, explains the analyst.
Overweight rating. Target lowered to $19.88 from $23.15. Industry view is In-Line.
REA Group Limited (REA) was downgraded to Neutral from Outperform by Macquarie
Macquarie expects REA Group to report solid listing growth within first half results. Web tracking suggests continued market strength has driven 15% volume growth in the half in an already record listing volume calendar year.
Looking past the first half, the broker highlights an expected decline in building commencements likely suggests a similar deceleration of media ad revenue over the coming years which presents downside risk to earnings per share forecasts.
The broker looks to commentary on sustainable growth strategy for improved confidence. Earnings per share forecasts are updated 5%, -3%, -4% and -4% through to FY25.
The rating is downgraded to Neutral from Outperform and the target decreases to $162.00 from $192.00.
Regis Resources Limited (RRL) was downgraded to Hold from Add by Morgans
Morgans believes negative sentiment towards Regis Resources will outlast the operational impact (six months) from downgraded production at the Rosemount open pit, resulting from a wall slip. This follows other geotechnical issues 18 months earlier.
As a result, the broker reduces its rating to Hold from Add and the target price falls to $2 from $3.03. It’s thought more clarity on the medium-term production outlook, followed by execution, may unwind some of the current share price discount.
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.
