Buy, Sell, Hold – what the brokers say

Founder of FNArena
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In the wake of earnings season, as far as ratings upgrades and downgrades go, there no longer appears to be a broader theme, with a broad selection of individual stocks triggering responses. That’s probably an accurate reflection of the current state in the local share market: it’s about picking individual stocks that look better than others in a market that is normalising in valuations and expectations.

In the good books

PEET & Co (PPC) was upgraded to Buy from Neutral by Citi. The company’s earnings result was broadly in line with expectations but Citi thinks this will be the trough in organic earnings. Three other brokers maintained their buy or outperform ratings on the company, as Citi moved to upgrade.

WorleyParsons (WOR) was upgraded to Outperform from Neutral by Credit Suisse. Coverage of the stock has now switched to another analyst and the new guy is more confident about the value and growth opportunities for global player WorleyParsons. (The upgrade offsets the downgrade to Neutral issued last month.) The new analyst believes the share price is not adjusted for the growth that is coming and therefore represents “compelling value”.

In the not-so-good books

NRW Holdings (NWH) was downgraded to Neutral from Outperform by JP Morgan. The latest reporting season has confirmed the broker’s preference for contractors with either limited exposure to the Australian resource and energy sector or links to production mining services, or sufficient options available to find growth elsewhere. NRW Holdings does not fit into any of these categories with a heavy reliance on customers in mining, iron ore specifically, and was downgraded.

Transfield Services (TSE) was downgraded to Underweight from Neutral by JP Morgan because of concerns about margin pressure in the heritage services area, demand weakness in the Americas and the high gearing, which leaves little room for error. As noted above, it also does not neatly fit into the broker’s preferred categories for contractors with limited exposure to the Australian resource and energy sectors.

Virgin Australia (VAH) was downgraded to Neutral from Outperform by Credit Suisse. Although FY13 results were in line with guidance, Credit Suisse remains concerned about the competitive response from Qantas (QAN) in domestic divisions. Credit Suisse believes growth in east coast “Golden Triangle” sectors could be relatively flat, although this excludes TigerAir, where it remains unclear where capacity growth will be targeted.

The FNArena database 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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