There were still plenty of downgrades, particularly to retailers like Harvey Norman and Woolworths, at the tail end of reporting season.
In the good books
Citi upgraded Caltex (CTX) to Neutral from Sell. Citi has taken the view that interest rates are going to stay lower for longer. With investors seeking yield in relatively less risky equities, the analysts believe Caltex in its new format, ex-Kurnell refinery, will come into focus. This has led to a re-assessment of Citi’s valuation for the stock. Citi sees longer-term challenges, but shorter term the yield and solidity of the growth profile are likely to prevail. Buy/Sell/Hold 0/2/5.
Credit Suisse upgraded Sydney Airport (SYD) to Outperform from Neutral. The company has a strong market position and could create value from renegotiating international aeronautical changes and from the development of the new western Sydney airport. Sydney Airport has first right of refusal in the development of the new airport and the government’s need to incentivise the investment reduces regulatory risk at the existing airport. Buy/Sell/Hold 3/0/4.
In the not so good books
Credit Suisse downgraded Aristocrat Leisure (ALL) to Underperform from Neutral. The AGM has raised questions about Video Gaming Technologies (VGT). Credit Suisse suspects the company is implying a flat market in Oklahoma, where its newly-acquired business derives 90% of earnings. Credit Suisse downgrades to Underperform from Neutral on share price strength. Buy/Sell/Hold 5/1/1.
Deutsche Bank downgraded Graincorp (GNC) to Hold from Buy. The downgrade to FY15 guidance has resulted in Deutsche Bank reducing forecasts by 35% and highlights the continuing challenges in another below-normal season. Buy/Sell/Hold 0/3/3.
Credit Suisse downgraded Harvey Norman (HVN) to Neutral from Underperform and Macquarie downgraded to Underperform from Neutral. First half results were solid and a little better than Credit Suisse expected. Benefits from the housing market are expected to continue in the medium term. Macquarie has raised earnings forecasts as a result but despite strong sales and profit growth, is downgrading to Underperform. It believes the stock has run too far in 2015. Buy/Sell/Hold 4/3/1.
Credit Suisse downgraded Myer (MYR) to Neutral from Outperform after Bernie Brookes stepped down as CEO to be replaced by Richard Umbers. CFO Mark Ashby will also leave in May. The timing, two weeks prior to the first half results, has raised some eyebrows at Credit Suisse. Buy/Sell/Hold 1/2/5
Credit Suisse downgraded Woolworths to Neutral from Outperform, Deutsche downgraded to Hold from Buy, Macquarie downgraded to Underperform from Outperform and Morgans downgraded to Hold from Add. A change in strategy and guidance downgrades to the low end of consensus forecasts signals to Credit Suisse that the main issue is just how much profit decline Woolworths will endure to improve its market position. Deutsche considers the results a sideshow, given reductions in guidance and plans for heavy investment. Macquarie is downgrading straight to Underperform from Outperform, suggesting the share price will not recover until a detailed investment strategy is clearly outlined. And appears to Morgans that the company has decided to sacrifice second half earnings in order to restructure parts of the business. Buy/Sell/Hold 0/5/3.
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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