Buy, Sell, Hold – what the brokers say

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As earnings season draws to a close, analysts seem already to be on holidays, with just a handful of actions so far this week. Downgrades outnumber upgrades but, as ever, analysts are conflicted, with at least one company, James Hardie, getting both.

In the good books

Credit Suisse upgraded Beach Energy (BPT) to Outperform from Neutral.

Beach has leverage to the rising prices for east coast gas, without the exposure to the downside of the export LNG projects. The company also has a quality oil business in the Western Flank.

Macquarie upgraded James Hardie (JHX) to Outperform from Neutral following its quarterly result, which beat the broker’s expectations. The company also gave its shareholders a 125-year anniversary present in the form of a US28 cent special dividend. The company delivered an upbeat commentary and suggested more capital will be returned to investors. With Australia and New Zealand and the US showing positive trends in residential construction, the broker upgrades to Outperform. (See downgrade below)

In the not-so-good books

JP Morgan downgraded Aurora Oil and Gas (AUT) to Neutral from Overweight. The broker was waiting for Aurora’s result before reassessing its view in light of the bid by Canadian company Baytex Energy in early Feb, just in case there were any potential deal breakers therein. There aren’t, so with the bid highly likely to succeed, the broker has downgraded to Neutral, given the stock is trading in line with the bid price.

JP Morgan downgraded Ausdrill (ASL) to Underweight from Neutral. Although the first half results were broadly in line with JP Morgan’s estimates, management is now forecasting no improvement in trading conditions in the second half. Gearing is a concern too for the broker, reducing the buffer against risks. The results also show the company has lost its strong link to mine production volumes in WA iron ore and Australian/West African gold.

Credit Suisse downgraded James Hardie (JHX) to Neutral from Outperform.

While capital management provides yield support, Credit Suisse has reduced the rating following the relative share price outperformance over the quarter. The broker is looking for a more attractive entry point.

Macquarie double downgraded Woolworths to Underperform from Outperform. Following Woolworths’ first half result, management has tightened its FY14 guidance range to 5-7% growth from 4-7% growth, and the broker has downgraded its forecast to 7%. Macquarie suggests that while the outlook for food and liquor remains positive, as was evident in quarterly sales numbers, sales at Masters are still declining and the losses are growing.

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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