Buy, Sell, Hold – what the brokers say

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Banks were front and centre of broker activity this week as we move into their interim reporting season. Like Charlie, many brokers now think they are fair valued and other analysts are moving around their preferred pick amongst the big four.

In the good books

BA–Merrill Lynch has upgraded CBA to Neutral from Underperform. BA-ML is joining the experts in the local share market who’ve started to re-assess Australian banks following yet another period of market outperformance. The upgrade sees CBA turning into BA-ML’s most preferred major bank on the back of an improved outlook for capital and returns.

Resmed has been upgraded to Buy from Hold by Deutsche Bank and to Add from Hold by CIMB Securities. Third quarter results were in line with CIMB’s expectations. Price adjustments supported volumes but CIMB notes this was at the expense of margins. Deutsche Bank believes a return to more normal pricing and demand conditions is likely after US competitive bidding mark 2, and sales growth in FY15 should also be boosted by the new product range.

In the not so good books

BA-Merrill Lynch has downgraded Westpac to Underperform from Neutral and says Westpac has simply become over-priced, otherwise known as too expensive. The analysts have lifted estimates on the back of recent housing strength and lower bad debts, but it’s insufficient to justify the present share price. Plus the analysts see looming regulatory risks from the 13 May Budget, D-SIB and the Financial Services Inquiry.

Citi has also downgraded Westpac to Neutral from Buy. The broker considers Westpac is the best positioned of the major banks for revised target ranges but special dividends are unlikely for now. The $35.75 target is maintained.

BA-Merrill Lynch has downgraded NAB to Neutral from Buy and Citi has downgraded to Sell from Neutral. BA-ML believes that selling the UK assets is not going to happen this year and thus investors’ focus will shift to the operational side of NAB and it’s not particularly pretty.

Citi says the banks have outperformed the market over the last three months as a sector but NAB has performed more in line. The rating is reduced because the broker expects poor first half revenue and underlying profit growth amidst lacklustre demand for business lending.

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.

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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