Buy, Sell, Hold – what the brokers say

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We are well into the earnings seasons and brokers have been reviewing their forecasts for the next year. Overall, it appears that the outlook statement is driving how the market is responding to each company report. So far this week, four stocks have been upgraded, and four downgraded.

In the good books

Echo Entertainment (EGP) was upgraded to Neutral from Underweight by JP Morgan.The FY14 result beat the broker’s forecasts. The final dividend was also stronger than expected. Following significant upgrades to the earnings outlook, JP Morgan has upgraded its rating to Neutral from Underweight. Price target is raised to $3.02 from $2.64. Earnings forecasts have been revised up by 25.1% for FY15 and by 11.0% for FY16, given changes in win rate methodology.

UBS reaffirmed its Buy rating on Echo Entertainment.

Computershare (CPU) was upgraded to Neutral from Underweight by JP Morgan. FY14 results were in line with expectations. JP Morgan is maintaining FY15 forecasts and believes the downside risk of further deterioration in margin income is less significant after the re-basing seen in the second half. Rating is upgraded to Neutral from Underweight as a new analyst takes up coverage, and the target is lifted to $12.45 from $11.15.

REA Group (REA) was upgraded to Outperform from Neutral by Credit Suisse, and to Buy from Neutral by UBS. The FY14 results were above Credit Suisse’s forecasts and FY15 earnings forecast has been raised by 7%. The broker believes the recent fall in the share price has created a near term buying opportunity. Price target is raised to $49.00 from $47.50.

For UBS, the FY14 results were in line with the broker’s expectations. FY15-18 earnings estimates are lifted by 4-8% to factor in market based pricing, new product initiatives and the acquisition of a 17.2% stake in iProperty ((IPP)). UBS is upgrading to Buy from Neutral and lifting the target to $49.00 from $47.00. The broker envisages upside coming from delivering better value to both agents and vendors and success with new product.

BA-Merrill Lynch also sees REA as a buy, while JP Morgan, Macquarie and Deustche reaffirmed neutral or hold ratings. CIMB rates REA as a sell.

Bradken (BDK) was upgraded to Add from Hold by CIMB, and to Outperform from Neutral by Macquarie. Earnings were in line with CIMB’s forecasts and the May trading update. The broker considers expectations around FY15 are reasonable and Bradken looks to be able to withstand the subdued environment better than most. The broker is increasingly confident around the retention of cost savings and upgrades to Add from Hold. The target is raised to $5.30 from $3.90.

Macquarie notes cash flow is solid and the company is having success with its manufacturing restructuring. Pricing pressure remains and demand is uncertain but the broker suspects a bottom has been seen. Rating upgraded to Outperform from Neutral and target is raised to $5.20 from $3.95.

Credit Suisse went the other way, downgrading Bradken to Neutral from Outperform. While the result was in line with forecasts and believes that Bradken could be an improving story, the main drawback is that most of this is taken into account already in the price. Target price is raised to $5.00 from $4.25.

UBS rates Bradken as neutral, while JP Morgan rates as overweight.

In the not so good books

GPT (GPT) was downgraded to Underperform from Neutral by Credit Suisse. GPT has increased the FY14 earnings target towards the market’s expectation of 3.5% and cost of debt has been revised down to 5.0% from 5.1%. Credit Suisse believes the trajectory is uncertain and expects, as the year draws to a close, that the market will re-focus on growth into 2015. The rating is downgraded to Underperform from Neutral. Target is raised to $4.04 from $4.00.

BA-Merrill, Citi, Deutsche, JP Morgan and UBS reaffirmed neutral/hold ratings on GPT, while Macquarie rates as Outperform.

JB Hi-Fi (JBH) was downgraded to Hold from Add by CIMB. Softening underlying cash conversion is a concern for the broker. Sales growth of 3% is forecast for FY15. CIMB lowers FY15 profit forecasts by 7% and reduces the rating to Hold from Add. The broker notes a renewed focus on cost management that aims to offset revenue pressures but suspects this may not be enough. CIMB advises investors to wait for like-for-like momentum to steady to reconsider investing in the stock. Target reduces to $19.40 from $22.90.

UBS, Macquarie, JP Morgan and BA-Merrill Lynch reaffirmed buy/outperform/overweight ratings, Credit Suisse and Deutsche neutral/hold, while Citi rates JBH as a sell.

Panaust (PNA) was downgraded to Neutral from Overweight by JP Morgan. The broker believes the $2.30 target is fair and in line with GRAM’s bid, but does not discount the possibility of a better offer from GRAM or another party. Target price is $2.30

ROC Oil (ROC) was downgraded to Neutral from Overweight by JP Morgan, because the stock is trading at or near valuation following the 69c per share takeover offer from Fosun. A 65c target is retained.

FNArena 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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