There was some good news out this week for CSR and Qantas. CSR announced a better than expected earnings result and Qantas indicated that cost-cutting initiatives were on track, prompting upgrades for both.
In the good books
JP Morgan upgraded ANZ (ANZ) to Overweight from Neutral. Buy/Hold/Sell 3/3/2 JP Morgan has upgraded given the current valuation gap to peers, National Australia Bank (NAB) in particular. The broker supports the bank’s progressive capital strategy and considers assumptions that ANZ is short of capital relative to peers misleading.
Citi upgraded CSR (CSR) to Buy from Sell. Buy/Hold/Sell 5/3/0 Citi finds greater earnings clarity with the FY15 results and suspects the residential property cycle will be extended and aluminium will benefit from lower cost linkage to alumina. Citi incorporates enhanced opportunities and synergies under the new brick JV with Boral (BLD) and, with an elongated construction cycle, upgrades to Buy from Sell.
JP Morgan upgraded Qantas (QAN) to Overweight from Neutral. Buy/Hold/Sell 7/0/0 Qantas has provided insight into several initiatives and progress on its cost cutting. Given the outperformance in the stock over the past year, JP Morgan suspects the more positive outlook is now well understood. Still, the stock is cheap relative to other airlines and the broker envisages scope for earnings upgrades over the next 12 months.
In the not-so-good books
Macquarie downgraded Bluescope Steel (BSL) to Neutral from Outperform. Buy/Hold/Sell 5/3/0 Macquarie has reviewed the steel sector in the light of commodity price changes. Structural oversupply is being exported and undermining pricing power, in the broker’s opinion. The March round of price changes – lower iron ore and coal – favoured steel margins but now the price changes are likely to have the opposite effect, especially in FY16 and Macquarie revises BlueScope’s earnings estimates lower.
Resmed (RMD) was downgraded to Sell from Buy by Citi and Neutral from Outperform by Credit Suisse. Buy/Hold/Sell 3/4/1 ResMed has announced its SERVE_HF Heart Failure trial has failed and this is a major setback, given Citi analysts had already accounted for success in their forecasts and valuation for the stock. Making matters worse, the failure will hit some 7% of revenues which is high margin, point out the analysts, plus a one-off impairment charge seems but logical. Credit Suisse has downgraded to Neutral from Outperform following the failure of the SERVE-HF trial.
The above was compiled from reports on FNArena, which tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.
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