There have been 2 upgrades and 3 downgrades from the 7 stockbrokers monitored by FNArena so far this week.
In the good books
Computershare Limited (CPU) was upgraded to Accumulate from Hold by Ord Minnett
The strong increase in expectations for the yield curve raises the risk of demand reduction and rising corporate debt costs. In isolation, Ord Minnett points out, ignoring the possibility that earnings would eventually recover, higher interest rates could also reduce the appeal of shares versus bonds.
The broker highlights Computershare’s greater sensitivity to benefits from rising interest rates versus the risks from rising expenses in an inflationary environment.
The stock is also benefiting from a decline in the value of the Australian dollar versus the US dollar. Hence, the broker upgrades to Accumulate from Hold, believing the interest-rate leverage should, on balance, act as a positive. Target is raised to $26 from $25.
Endeavour Group Limited (EDV) was upgraded to Outperform from Neutral by Macquarie
Macquarie envisages significant scope for Endeavour Group to reinvest in its hotel network and if this is initially focused on gaming the 15% return on investment hurdle could be conservative.
The broker suggests retail and hotels in combination offer a natural hedge to consumer confidence and a return to services should mean high-margin hotels growth accelerates.
In the current climate, Macquarie prefers staples over discretionary retailers and upgrades Endeavour Group to Outperform from Neutral. Target is steady at $7.70.
In the not-so-good books
Harvey Norman Holdings Limited (HVN) was downgraded to Neutral from Outperform by Macquarie
Macquarie has a more bearish outlook on consumer expenditure amid rising inflation and interest rates and a rebound in service consumption.
While the broker likes Harvey Norman’s asset backing and proven business model that is resilient during downturns it remains concerned about the macro outlook for the short term.
The likely over-consumption of goods over the past two years is a key risk to near-term performance, the broker adds. Rating is downgraded to Neutral from Outperform and the target lowered to $4.40 from $6.40.
JB Hi-Fi Limited (JBH) was downgraded to Underperform from Outperform by Macquarie
Macquarie has a more bearish outlook on consumer expenditure amid rising inflation and interest rates and a rebound in service consumption.
JB Hi-Fi is a best-in-class operator, in the broker’s view, but the macro environment is making life challenging. Macquarie downgrades to Underperform from Outperform, expecting reduced discretionary spending going forward.
The broker observes increased numbers of electronics and appliances being purchased for the home over the last two years will lead to a longer replacement cycle. Target is reduced to $40.90 from $57.80.
Wesfarmers Limited (WES) was downgraded to Underperform from Neutral by Macquarie
Macquarie has a more bearish outlook on consumer expenditure amid rising inflation and interest rates and a rebound in service consumption.
While the Wesfarmers portfolio is well-placed in a downturn, the broker believes rising interest rates will pressure its customer base more than most. The broker updates its forecasts to reflect increased economic uncertainty over the next 12 months, with the US entering a recession and Australia slowing significantly.
Over consumption of goods over the last two years is the key risk to the near-term performance of the Wesfarmers retail businesses. Rating is downgraded to Underperform from Neutral. Target is reduced to $43.30 from $47.50.
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.