In the good books

Downer EDI (DOW) Upgraded to Buy from Neutral by Citi B/H/S: 3/2/1

Citi upgrades to Buy from Neutral and raises FY18-20 underlying net profit forecasts by 33-40%. This comes largely on the back of incorporating the integration of Spotless into forecasts after a period of restriction, with a subsequent transfer of coverage to another analyst.

The broker increases the target to $7.50 from $7.26 following the revisions. Citi remains attracted to the diversification and leverage to infrastructure-related sectors.

Perseus (PRU) Upgraded to Buy from Neutral by Citi B/H/S: 4/1/0

Commodity analysts at Citi have updated their price deck, which has resulted, mainly, in higher price forecasts for Q4 and calendar 2018, albeit in many cases prices remain below present spot prices.

For Australian based operations the exercise has a flipside in that a stronger-for-longer Aussie dollar is, despite the above, triggering downgrades to forecasts. This is partially offset by higher valuation multiples for the sector overall.

Citi is now projecting AUD/USD to remain above 80c for the next three years. Perseus Mining is the sole recipient of a recommendation upgrade following all of the above; to Buy/High Risk from Neutral. Price target jumps to 53c from 36c.

Sandfire (SFR) Upgraded to Equal-weight from Underweight by Morgan Stanley B/H/S: 1/6/1

A heightened risk backdrop means Morgan Stanley adopts a more defensive stance while retaining a positive view on the resources sector.

The broker lifts its rating for Sandfire Resources to Equal-weight from Underweight on valuation grounds. Target is reduced to $5.70 from $6.00. Industry view is Attractive.

Sonic Healthcare (SHL) Upgraded to Hold from Lighten by Ord Minnett B/H/S: 2/2/2

US Medicare has released proposed fees schedules for 2018 and the reductions are deeper than Ord Minnett expected. Final rates will be published in November following a consultation period.

The broker believes the impact of the rate reduction should be manageable and the company will probably seek savings to offset the cuts.

Rating is upgraded to Hold from Lighten despite the negative news, given the share price is now close to the target. Target is steady at $21.20.

This stock is not covered in-house by Ord Minnett. Instead, the broker whitelabels research by JP Morgan.

In the not-so-good books

Computershare (CPU) Downgraded to Sell from Hold by Deutsche Bank B/H/S: 1/5/2

Deutsche Bank downgrades to Sell from Hold. The broker believes the expansion into mortgage servicing may not deliver the operating leverage the company expects.

The broker’s analysis of the industry in the US suggests regulatory scrutiny that results in changes to business practice is likely to offset any operational gains.

The broker makes a small upgrade to FY18 and FY19 earnings and lowers the target to $13.00 from $13.70.

Evolution Mining (EVN) Downgraded to Underweight from Overweight by Morgan Stanley B/H/S: 3/3/1

A heightened risk backdrop means Morgan Stanley adopts a more defensive stance while retaining a positive view on the resources sector.

The broker downgrades to Underweight from Overweight on valuation grounds. Target is reduced to $2.10 from $2.70. Sector view: Attractive.

Fortescue (FMG) Downgraded to Underweight from Equal-weight by Morgan Stanley B/H/S:  3/4/1

A heightened risk backdrop means Morgan Stanley adopts a more defensive stance while retaining a positive view on the resources sector.

A risk of a commodity price correction by the end of the year, in addition to specific concerns for the elevated 58% grade discount, means the broker downgrades to Underweight from Equal-weight.

Independence Group (IGO) Downgraded to Neutral from Buy by Citi B/H/S: 2/3/1

Commodity analysts at Citi have updated their price deck, which has resulted, mainly, in higher price forecasts for Q4 and calendar 2018, albeit in many cases prices remain below present spot prices.

For Australian based operations the exercise has a flipside in that a stronger-for-longer Aussie dollar is, despite the above, triggering downgrades to forecasts. This is partially offset by higher valuation multiples for the sector overall.

Citi is now projecting AUD/USD to remain above 80c for the next three years. On the back of all of this, Independence Group’s rating has been downgraded to Neutral from Buy. Price target falls to $3.67 from $3.82.

Regis (RRL) Downgraded to Sell from Neutral by Citi B/H/S: 0/2/6

Commodity analysts at Citi have updated their price deck, which has resulted, mainly, in higher price forecasts for Q4 and calendar 2018, albeit in many cases prices remain below present spot prices.

For Australian based operations the exercise has a flipside in that a stronger-for-longer Aussie dollar is, despite the above, triggering downgrades to forecasts. This is partially offset by higher valuation multiples for the sector overall.

Citi is now projecting AUD/USD to remain above 80c for the next three years. On the back of all of this, Regis Resources’ rating has been downgraded to Sell from Neutral. Price target falls to $3.60 from $4.

Whitehaven Coal (WHC) Downgraded to Underweight from Overweight by Morgan Stanley B/H/S: 3/3/2

A heightened risk backdrop means Morgan Stanley adopts a more defensive stance while retaining a positive view on the resources sector.

The broker envisages the stock at risk of a commodity price correction by the end of the year and downgrades to Underweight from Overweight. Target falls to $3.20 from $3.60. Industry view: Attractive.

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.