Buy, Sell, Hold – what the brokers say

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Analysts were busy digesting results this week, as earnings season kicked off. ANZ’s good result on Monday only prompted one upgrade, as the other seven major brokers all chose to keep their ratings unchanged.

Although its results disappointed, Cochlear was also upgraded as some analysts had already factored in the poor numbers.

In the good books

UBS upgraded ANZ to Buy from Neutral. The quarterly trading update revealed cash profit of $1.73 billion. UBS notes operating trends were solid and the bank now expects bad debt charges to be down around 10% in FY14. Concerns over emerging markets have led to ANZ underperforming over the past year but given the fall in the share price, the broker considers it’s time to upgrade to Buy from Neutral. The seven other brokers on the database kept their ratings on hold following the quarterly update, with three Outperforms, two Neutrals and two Underperforms.

BA-Merrill Lynch upgraded Cochlear (COH) to Neutral from Underperform and JP Morgan upgraded to Neutral from Underweight, following a lacklustre first-half result. For BA-Merrill Lynch, the announcement delivered on its Underperform rating so this is now upgraded to Neutral. The price target is reduced to $54.75 from $55.05. Merrills thinks, despite concerns regarding the outlook and the FY14 guidance downgrade, the run rate in the second half is improving and this means an uplift in FY15. The stock is not quite a Buy yet for the broker, because there are still unanswered questions regarding the industry growth rate. JP Morgan says it was another disappointing result from Cochlear, with guidance cut by 15.6%. As the broker had assumed, technological advances from peers has meant a loss of market share for Cochlear. The compromised N6 release, and the absence of any new product, suggests bottom of the cycle earnings. That said, the last quarter featured strong underlying growth, the broker notes, market share aside. The broker feels FY15 could thus be a year of general earnings growth, if not of regained market share, and, as such, has upgraded to Neutral.

Credit Suisse upgraded iiNet to Outperform from Neutral. Credit Suisse has had a close look at the stock and decided to upgrade profit forecasts by 6.5% and 9.2% for FY15 and FY16 respectively. The broker thinks the company has reached a major turning point in broadband subscriber growth and, moreover, can sustain a higher rate of growth. Revised NBN assumptions result in expected broadband market growth of 5-6% for the next five years and iiNet is expected to benefit.

In the not-so-good books

UBS double downgraded Aurora Oil and Gas Limited (AUT) to Sell from Buy, following the announcement of a bid by Canadian company, Baytex Energy, for Aurora at $4.10 a share, via a scheme of arrangement. The bid has been recommended by Aurora directors, and UBS thinks the premium is justified. Whilst a higher bid cannot be ruled out, UBS is doubtful one will emerge. Shareholders will get to vote on the transaction in late April/early May. The rating has been downgraded to Sell from Buy and the price target is set at the bid price, $4.10 against $3.70 previously.

The above was compiled from reports on the FNArena database, 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.

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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