Buy, Sell, Hold – what the brokers say

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So far this week, a few old favourites have come under the spotlight – with Crown Resorts, Rio and Wesfarmers all getting upgrades. Many of these ratings moves are based on the belief that some of these companies that have been sold down too much are now good value.

In the good books

Citi upgraded Crown Resorts (CWN) to Buy from Neutral. The stock has sold off 10% over the year to date, relating to slowing Macau data and industry-wide concerns. Citi thinks the issues in Macau such as smoking bans, new transit visa restrictions and union pay have created a lot of “noise” but these are ultimately distractions to the fundamental driver of profitability – gambling. Moreover, June is a seasonally slow month and presents investors with a buying opportunity ahead of the seasonal lift in October.

Citi upgraded Henderson Group (HGG) to Buy from Neutral and Credit Suisse to Outperform from Neutral. Citi is lifting the rating, given the recent pull back in the share price and incorporating the recently announced acquisition of Geneva Capital Management into forecasts. Henderson’s revenue growth looks compelling, even though the stock is not cheap compared to its UK peer group. Credit Suisse is, raising the target to $5.00 from $4.80 based on an attractive valuation, strong growth prospects and upside earnings risk. The broker estimates the acquisition will be 3% accretive in FY15 and FY16.

BA Merrill Lynch upgraded Rio (RIO) to Buy from Neutral. Rio is down 12% since its Feb peak, underperforming BHP Billiton (BHP) by 9.5% and the index by 14.6%, driven by the fall in the iron ore price. But the broker believes iron ore is bottoming, as Chinese steel mills will soon need to restock and is confidant Beijing will maintain control over the Chinese property market.

JP Morgan upgraded Wesfarmers (WES) to Neutral from Underweight. JP Morgan is upgrading to Neutral from Underweight following a review of the investment thesis. The broker is increasingly confident in Bunnings and Coles and thinks there is a slight chance of capital management in FY14. Challenges in the industrial division and at Target weigh on the view.

In the not-so-good books

JP Morgan downgraded Nufarm (NUF) to Neutral from Overweight, given reduced valuation support following a rise in the share price in recent months. Improved winter cropping conditions in Australia are being offset by the late start in North America. The broker has revised earnings forecasts for FY14 and FY15 down by 4.6% and 4.8% respectively.

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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