Buy, Sell, Hold – what the brokers say

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As earnings season draws to a close, analysts have been extra busy moving on companies. The good news is that for the larger stocks at least, there seems to be more upgrades than downgrades. Here are this week’s highlights so far.

In the good books

JP Morgan upgraded QBE Insurance (QBE) to Overweight from Neutral on the back of a 2013 result that was slightly better than the broker expected. The broker is not completely confident that all reserving issues are laid to rest, but thinks any remaining will be smaller. Also, if QBE achieves just some of the initiative to improve margins, there will be value there.

The reported financials for Lend Lease Corporation (LLC) proved in-line, but CIMB believes this company is poised to generate some serious growth in the three years ahead and upgraded to Add from Hold. CIMB states consensus forecasts will prove too low for FY15/FY16 and, as the market comes to recognise this, investors will re-rate the stock. Prepare for higher PE multiple is the underlying message.

CIMB Securities upgraded Ramsay Health Care (RHC) to Add from Neutral. The interim result for Ramsay was as expected, but its features were strong enough to convince analysts at CIMB that a cautious stance is no longer appropriate. The broker likes the broad divisional performance, the show of operating leverage within the international group and – not to be dismissed – the group’s strong generation of cash flow. The latter implies management can remain on the lookout for profitable acquisitions. Earnings consistency has become a hallmark of the company and CIMB suggests this will continue to support share price momentum.

Credit Suisse upgraded Crown (CWN) to Neutral from Underperform. The broker notes turnover in Melbourne fell 33% in the first half, the biggest single fall since the company began making disclosures. Perth was flat. Credit Suisse has upgraded the stock to Neutral from Underperform, supported by Macau’s strong quarterly results and valuation. The price target is raised to $18.50 from $15.90.

In the not-so-good books

UBS downgraded Caltex (CTX) to Neutral from Buy. Caltex’s 2013 result beat consensus by 1.5% and met the broker but the stock was downgraded to reflect recent share price strength (up 8% in three months). The dividend generally exceeded expectations. UBS’s growth forecasts fall short of the company’s, but suspects the difference will come from the premium fuel business.

CIMB Securities downgraded NAB (NAB) to Hold from Add on reduced scope for earnings outperformance. Cash earnings for the first quarter were roughly in line. The broker thinks the tail risk from UK asset quality has been removed, while the earnings threat from life insurance losses and UK claims have likely peaked. Ongoing revenue pressure in the flagship business banking unit and compensation risks from UK fixed-rate lending worries the broker. A clean result is needed to support a re-rating and that is unlikely in the first half, in CIMB’s opinion.

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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