At the same time, FNArena also counted ten downgrades, for ten listed companies,

Stockbroking analysts continue to issue recommendation upgrades for individual ASX-listed stocks, and in large numbers. For the week ending Friday, 28 November 2018, FNArena registered no less than 20 upgrades for 20 separate companies; only three upgrades stranded at Neutral/Hold.

At the same time, FNArena also counted 10 downgrades, for 10 listed companies,

of which six moved to Sell. Despite the broader market clocking off on three negative months in succession, it is not a one way street for investors. At least not if we can take guidance from analysts’ moves.

Equally remarkable is the fact the trend remains negative for valuations and price targets.

The picture looks a bit rosier when we overlook tables for revisions to earnings estimates. Despite a rough treatment in the share market, Aristocrat Leisure enjoyed the largest positive adjustment to forecasts for the week, followed by Suncorp, Brickworks, Qantas, and others.

Not so lucky, and leading a large contingent of negative revisions, was Unibail-Rodamco-Westfield, followed by Mayne Pharma, Automotive Holdings, Nine Entertainment and, CYBG.

The calendar, previously populated with AGMs, EGMs, Investor Days and out-of-season financial results, is now looking decidedly more empty, which might translate into lesser action from stockbroking analysts too. Traders and investors alike will be keeping their fingers crossed this increases the odds for a broad based share market rally leading into end-of-year holiday season.

In the good books

LINK ADMINISTRATION HOLDINGS LIMITED ((LNK)) was upgraded to Outperform from Neutral by Credit Suisse. B/H/S: 5/1/0

The company has had an eventful 18 months, with several large acquisitions, equity raising and regulatory changes. Credit Suisse estimates that M&A is the largest driver of growth and PEXA the most significant contributor.

Organic growth is also expected to contribute over coming years, driven by inflation-linked pricing and growth in industry fund members. The broker’s analysis centres on FY22 earnings but the growth trajectory is unlikely to be even.

The pull back in the share price has increased the value appeal and the broker upgrades to Outperform from Neutral. Target is unchanged at $8.30.

NINE ENTERTAINMENT CO. HOLDINGS LIMITED ((NEC)) was upgraded to Neutral from Sell by Citi. B/H/S: 2/2/0

Following the acquisition of Fairfax, Citi updates forecasts and now expects pro forma operating earnings (EBITDA) of $487m in FY19. Domain ((DHG)) as well as merger synergies are expected to drive growth in the longer term.

In the short term the broker envisages downside risk to earnings as advertising revenue is already slowing down. The broker upgrades to Neutral from Sell and reduces the target to $1.85 from $2.10.

ORORA LIMITED ((ORA)) was upgraded to Buy from Neutral by UBS. B/H/S: 3/5/0

UBS believes the value driver in the near term is execution on the North American growth strategy. The broker envisages little scope for strategic M&A in the core Australasian segment, given its low growth outlook.

In contrast, the highly fragmented North American packaging distribution industry provides an opportunity. UBS upgrades to Buy from Neutral. Target is raised to $3.90 from $3.74.

Orora has announced the acquisition of Pollock Packaging, which has distribution centres in Texas, California, New Jersey and Georgia. The broker notes this is Orora’s largest M&A transaction and follows the recent US$24m acquisition of Bronco Packaging.

QANTAS AIRWAYS LIMITED ((QAN)) was upgraded to Buy from Hold by Deutsche Bank. B/H/S: 4/1/1

Deutsche Bank rolls forward fuel costs and its hedging model to incorporate an increased level of hedging and a lower average Brent oil price for FY19 and FY20.

In addition, the broker notes Qantas continues to benefit from strong demand as well as higher domestic ticket prices.

The broker upgrades earnings estimates and raises the target to $6.90 from $6.15. Rating is upgraded to Buy from Hold.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) was upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 4/3/1

Credit Suisse has changed its view somewhat regarding the potential for change after the Productivity Commission review. While there is a higher probability of changes to airport regulation versus past reviews the probability of significant change is considered low.

This time around there are no specific behaviours, such as poor customer relations at Sydney Airport, in question and therefore the broker deduces the risk of changes is lower than in the 2012 inquiry.

Rating is upgraded to Neutral from Underperform. Target is steady at $6.80. The broker also believes lower oil prices are favourable for international capacity additions to and from Sydney Airport particularly in 2019-20.

In the not-so-good books

CSR LIMITED ((CSR)) was downgraded to Underweight from Equal-weight by Morgan Stanley. B/H/S: 2/3/1

Morgan Stanley observes the sale of Viridian Glass ends a difficult chapter for CSR. Cash flow may facilitate future capital management although concerns around Australian housing and aluminium makes the broker cautious.

CSR has sold its Viridian business for $155m and a future sale of the property is estimated to deliver $60m. While the sale removes one issue, the broker suggests other pressures are now mounting.

Rating is downgraded to Underweight from Equal-weight. Target is reduced to $3.00 from $3.75. Industry view: Cautious.

HRL HOLDINGS LTD ((HRL)) was downgraded to Hold from Add by Morgans. B/H/S: 0/1/0

The impact of lost methamphetamine testing revenue is materially greater than Morgans expected. New revenue is lower margin and the geotechnical business remains challenged.

The broker was very disappointed with the company’s update. HRL has quantified the expected earnings impact from the reduction in methamphetamine testing volumes, with revenue expected to decline by around -$2.7m.

The broker suspects the market may question the timeliness in quantifying the extent of the earnings impact and plans to revisit M&A are likely to be put on hold in the short term.

The strength of the Analytical business should provide some near-term valuation support. Rating is downgraded to Hold from Add. Target is reduced to $0.12 from $0.22.

WESFARMERS LIMITED ((WES)) was downgraded to Lighten from Hold by Ord Minnett. B/H/S: 3/1/3

Following a review of its investment thesis post the de-merger of Coles ((COL)), Ord Minnett has a cautious outlook on Wesfarmers and questions capital allocation and the lack of valuation support.

The broker finds the appropriate PE multiple difficult to determine but believes a de-rating is likely, given the removal of a more defensive earnings stream and portfolio diversity.

Bunnings appears to be trading at a higher multiple versus other housing-related companies and other divisions appear to be more discount multiple businesses.

The broker downgrades to Lighten from Hold and reduces the target to $29 from $47.

Earnings forecasts

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.

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.

 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.