In the good books

Ansell (ANN) was upgraded to Outperform from Neutral by Macquarie

Macquarie finds macro-economic data is broadly supportive of organic revenue growth, while further moderation in raw material prices offers the potential for gains in margin.

In view of the flexibility in the balance sheet and incremental benefits from the company’s transformation program, as well as undemanding valuations, Macquarie upgrades to Outperform from Neutral.

Target is reduced to $26.50 from $27.20 to reflect lower long-term growth assumptions. 

Costa Group (CGC) was upgraded to Outperform from Neutral by Credit Suisse

Last week’s trading update gave investors reasons to reconsider long-term assumptions, Credit Suisse points out, although the net profit impact for 2018 is immaterial to valuation.

The new material in the announcement was regarding domestic berry pricing, which was soft in late December and early January. However, the broker suggests the big swing in profit between 2019 and 2018 will be driven by citrus and international business, not berries.

Credit Suisse shifts its valuation technique to DCF and takes more conservative long-term assumptions. The rating is raised to Outperform from Neutral as the share price has dropped below the target. Target is reduced to $5.60 from $7.30

Cleanaway (CWY) was upgraded to Buy from Neutral by UBS

UBS highlights Cleanaway Waste as a defensive play in a market where investors are concerned about the slowdown in consumer spending. The broker suggests the recent win at Sydney Council is an indication the company is gaining share.

Toxfree is also likely to provide synergy benefits over the next three years. Cleanaway is expected to be at the forefront of structural change in the Australian waste industry.

UBS upgrades to Buy from Neutral. Target is steady at $2.15.

HT&E Limited was upgraded to Buy from Neutral by Citi

Citi upgrades to Buy from Neutral as valuation is considered attractive at current levels. There is further upside potential if the company can obtain a favourable outcome on its tax dispute. Citi maintains a target of $1.90.

Magellan (MFG) was upgraded to Equal-weight from Underweight by Morgan Stanley

While asset managers are cheap Morgan Stanley suspects ongoing outflows will mean a re-rating in the near term is unlikely. In contrast to global peers, Australian stocks appear at a premium, even accounting for flows. Morgan Stanley upgrades Magellan Financial to Equal-weight from Underweight, given its stronger investment performance versus peers. Target is raised to $25.00 from $21.50. Industry view: In-Line.

Michael Hill (MHJ) was upgraded to Neutral from Sell by Citi (3) –

Citi analysts observe the decline in like-for-like sales has stopped and Michael Hill actually achieved positive growth over the Christmas period. They have upgraded to Neutral from Sell in response. There is potential for new management to actually turn this ship around, the analysts suggest. Estimates have been lifted short term, but reduced for FY21 and FY22. Target falls to 63c from 65c.

Nine Entertainment (NEC) was upgraded to Buy from Neutral by Citi

Citi reduces earnings estimates for the entire traditional media sector, primarily to reflect more conservative growth forecasts. Nine Entertainment’s rating is upgraded to Buy from Neutral, entirely because of valuation, with the drop in the share price considered excessive. Target is reduced to $1.60 from $1.85.

News Corporation (NWS) was upgraded to Buy from Neutral by Citi

Citi reduces earnings estimates for the entire traditional media sector. The broker upgrades News Corp to Buy from Neutral, believing the stock represents an attractive entry point at current levels. Target is reduced to $20.00 from $21.45.

Senex Energy (SXY) was upgraded to Buy from Accumulate by Ord Minnett

Ord Minnett adjusts oil price forecasts, lowering assumptions to US$60/bbl for 2019-21. The broker’s forecasts are now at the lower end of consensus estimates, implying there could be market downgrades. Ord Minnett upgrades its recommendation for Senex Energy to Buy from Accumulate on valuation. The broker reduces the target to $0.41 from $0.42. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

Seven West Media (SWM) was upgraded to Neutral from Sell by Citi

Citi reduces earnings estimates for the entire traditional media sector. The broker expects Seven West Media will continue gaining market share in FY19, despite a flat TV market. Owing to the recent decline in the share price, the stock appears significantly cheaper and the broker upgrades to Neutral from Sell. Target is reduced to $0.60 from $0.70.

Southern Cross Media (SXL) was upgraded Neutral from Sell by Citi

Citi reduces earnings estimates for the entire traditional media sector. The broker believes growth in regional revenue should offset any decline in TV and Metro radio. Earnings forecasts are reduced by -8-11% to account for a sharper decline in regional TV. Despite the downgrades, the broker believes substantial weakness is already Incorporated in the price and upgrades to Neutral from Sell. Target is reduced to $1.05 from $1.10

In the not-so-good books

Fortescue (FMG) was downgraded to Hold from Accumulate by Ord Minnett

Ord Minnett believes the path of least resistance for iron ore prices is lower, amid a forecast increase in 2019 supply and lower Chinese steel prices. Fortescue Metals has rallied almost 30% since its September low and is now approaching valuation. Hence, the broker downgrades to Hold from Accumulate. Target is raised to $4.90 from $4.80. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

Mayne Pharma (MYX) was downgraded to Neutral from Buy by UBS

UBS changes the lead analyst covering Mayne Pharma and re-models earnings drivers. Revised estimates for FY19-21 reflect a decline of -11-33% on prior estimates. Methodology has also shifted to a DCF valuation. Despite a relatively robust earnings outlook, UBS downgrades to Neutral from Buy and considers the stock now fairly valued versus historical levels and peers. Target is reduced to $0.83 from $1.15.

Platinum Asset Management (PTM) was downgraded to Underweight from Equal-weight by Morgan Stanley

While asset managers are cheap Morgan Stanley suspects ongoing outflows will mean a re-rating in the near term is unlikely. Looking forward, the broker believes Platinum Asset Management faces the greatest risk of de-rating as flows are expected to deteriorate. The stock is also trading at a high on the broker’s FY19 forecasts. Morgan Stanley downgrades to Underweight from Equal-weight, as this is the most expensive stock in the group under coverage. Industry view is In-Line. Target is reduced to $3.50 from $6.00.

St Barbara (SBM) was downgraded Hold from Accumulate by Ord Minnett

Ord Minnett remains positive on the ASX gold sector, believing the macro economic backdrop will accommodate further gold price movements. The broker believes ASX gold stocks are robust and should provide an excellent hedge into reporting season. Ord Minnett downgrades St Barbara to Hold from Accumulate on valuation grounds. Target is raised to $4.70 from $4.50. This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

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.