Buy, Sell, Hold – what the brokers say

Founder of FNArena
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Local stockbrokers were surprisingly busy in the first full week of January, upgrading and downgrading individual ASX-listed stocks in what is usually a slow week.

Amidst an overall flat-lining profile for commodities in general, with the optimists anticipating better times later in the year, the overall view remains that iron ore is destined for lower prices as the year unfolds, yet nobody is projecting mayhem in 2014. A growing number of analysts are succumbing to the view that the outlook for crude oil prices is for weakness, not strength this year.

In the good books

Oil Search (OSH) was upgraded to Neutral from Sell by Citi. Citi has rolled forward its oil and gas sector valuations and adjusted for lower 2014-15 Brent crude forecasts (ca 10%) and an offsetting lower Aussie dollar. The result is a target price increase for Oil Search to $8.42 from $8.22 and thus an upgrade to Neutral.

Atlas Iron (AGO) was upgraded to Outperform from Neutral by Credit Suisse. Credit Suisse has slightly increased its iron ore price forecasts over the next two years. While mild, the flow-through impact on Atlas earnings forecasts is still significant.
Credit Suisse also upgraded Mt Gibson Iron (MGX) upgraded to Neutral from Underperform for the same reason.

David Jones (DJS) was upgraded to Neutral from Underperform by BA-Merrill Lynch. The broker has tempered its negative view on David Jones’ sales in the period ahead. The result is a lift in earnings forecasts and a target price increase to $2.90 from $2.50.

Sirtex Medical (SRX) was upgraded to Buy from Neutral by UBS. The broker was positively surprised by dose sales well ahead of forecast for Sirtex in the second quarter. UBS is not assuming such growth ad infinitum, but it’s enough to see a target price increase to $15.00 from $12.60 and an upgrade to Buy.

Qantas (QAN) was upgraded to Neutral from Underperform by Credit Suisse. The broker believes airline market dynamics appear to have stabilised somewhat and expects Qantas’ upcoming strategy day to provide some positives. On the basis of share price weakness, the broker has upgraded.

In the not-so-good books

Nib Holdings (NHF) was downgraded to Sell from Neutral by Citi as the broker believes the market is pricing in overly ambitious growth expectations for Nib. The company intends to increase its premiums by 10% by FY15 and expects modest policyholder growth, and Citi expects customers will be more difficult to attract at the price.

Cardno (CDD) was downgraded to Neutral from Overweight by JP Morgan. The incumbent CEO has announced his retirement and JP Morgan sees market caution until the new, unknown CEO establishes himself.

Newcrest Mining (NCM) was downgraded to Underperform from Outperform by Credit Suisse. While the broker expects a weaker AUD from here, it is also forecasting a gold price below US$1000 by late 2014. The impact is a drop in Newcrest’s target price to $8.20 from $8.75 and a double-downgrade straight to Underperform.

The FNArena database 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.

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 regards to your circumstances.

 

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