For the week, FNArena registered nine upgrades and eight downgrades for individual ASX-listed stocks, with Woodside Petroleum (2x upgrades) and Class ltd (2x downgrades), respectively, stealing the show on both sides of the ledger. (Woodsides upgrades were covered in last Thursday’s Switzer Report). If there are any themes to pay attention to, they are that companies operating in the fringes of the automobile sector seem to have been cast aside too easily, according to analysts, while energy and miners divide, and bricks & mortar retailers simply cannot find any new friends.
Apparently, Christmas sales have been awful, and reasonable at best for the better performers in the sector. Gold miners are losing favour now that equities in general are trying to build a base.
As far as earnings estimates are concerned, the balance is decidedly in favour of falling forecasts, which are needed for the current healing process to run its course. QBE Insurance, Santos and Woodside Petroleum have been enjoying positive adjustments, while notable reductions have arrived for companies including Sydney Airport, Syrah Resources, Challenger, Japara Healthcare, Suncorp and Costa Group.
The year is young, but already companies such as Costa Group and Kathmandu had to warn investors about disappointing operational dynamics. On the other hand, Treasury Wine came out strongly and decisively, issuing positive guidance for the present year, despite some of its peers suffering, as did Noni B.
The gap between these two groups will be one of the defining characteristics of the February reporting season.
In the good books
ARB CORPORATION LIMITED ((ARB)) was upgraded to Hold from Lighten by Ord Minnett. B/H/S: 2/2/0
Ord Minnett analysts observe the shares have meaningfully de-rated since June-August last year, significantly underperforming the S&P/ASX Small Industrials. They only see minor near-term risk to earnings.
Following the above changes, the analysts believe the risk-reward looks balanced for investors who’d like a piece of what remains a “high-quality business led by seasoned management, with a business model that has continued to see sales growth despite economic cycles”.
Recommendation has been upgraded to Hold from Lighten, while the target price has been pulled back to $15.70 from $17.
MONASH IVF GROUP LIMITED ((MVF)) was upgraded to Add from Hold by Morgans. B/H/S: 2/0/0
Share price action suggests the IVF sector is poised for more disruption, argue analysts at Morgans. They note company management stuck to guidance at the AGM in November, albeit with a stronger H2 to compensate for a weak H1.
The stockbroker has taken the view that investors are probably too negative (as judged by share price weakness) and thus the rating is upgraded to Add from Hold. Price target falls to $1.13 from $1.21 on reduced “underlying” forecasts.
In the not-so-good books
BHP GROUP ((BHP)) was downgraded to Sell from Hold by Deutsche Bank. B/H/S: 5/2/1
A general sector update on mining stocks has triggered a downgrade for BHP to Sell from Hold at Deutsche Bank. The price target has fallen to $29.60 from $36 with the analysts pointing out margins have peaked for the Big Australian and earnings forecasts are now rolling over; a first in three years.
Underlying the broker’s thesis is a tipping point for the Chinese property sector into the negative. This leads to the expectation of commodity markets likely to move into a trough in Q1, hitting prices for iron ore and crude oil, among others.
On revised forecasts steel consumption in China is projected to decline from 7% growth in 2018 to only 1% in 2019. The key property sector is expected to experience a decline from 10% growth to nil growth. Short term forecasts for most base metals have been scaled back.
CLASS LIMITED ((CL1)) was downgraded to Hold from Buy by Ord Minnett. B/H/S: 1/2/0
Ord Minnett focuses on the rapidly slowing pace of growth for the company, with the analysts starting to question how large precisely the ultimately addressable client base turns out to be.
The broker has made further material cuts to forecasts. Target price tumbles to $1.30 from $2.43. Recommendation is downgraded to Hold from Buy.
EVOLUTION MINING LIMITED ((EVN)) was downgraded to Sell from Hold by Deutsche Bank .B/H/S: 2/4/2
A general sector update on mining stocks has seemingly led to a downgrade for Evolution Mining to Sell from Hold at Deutsche Bank.
The price target for the gold miner improved to $3.30.
NEWCREST MINING LIMITED ((NCM)) was downgraded to Hold from Buy by Deutsche Bank .B/H/S: 2/5/1
A general sector update on mining stocks has seemingly led to a downgrade for Newcrest Mining to Hold from Sell at Deutsche Bank.
Target price improved to $24 from $23.
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.
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