In the good books
Deutsche Bank upgraded Cochlear (COH) to Hold from Sell. Given subdued market growth and probable peaking of sales of upgrades in FY16, Deutsche Bank expects only single digit earnings growth from FY17. Nevertheless, a strong boost from the weaker Australian dollar is now expected to push earnings growth in FY16 into the mid teens. This in turn leads to a lift in the price target to $82 from $71 and an upgrade in the rating.
Deutsche Bank upgraded Resmed (RMD) to Hold from Sell. The company faces a difficult second half, with a competitor product launch and the roll out of competitive bidding in the US. Still ResMed is trading closer to Deutsche Bank’s valuation after recent share price weakness. The strengthening of the US dollar against the key cost currencies should provide a material boost to earnings.
Macquarie upgraded Xero (XRO) to Neutral from Underperform. Since the broker initiated coverage on Xero, subscriber growth in Australia and New Zealand has been greater than expected but not as fast as Macquarie’s US-UK market forecasts. Xero remains the fastest growing software-as-a-solution business under coverage but following the market pullback, no longer trades at a significant premium.
In the not-so-good books
Morgan Stanley downgraded CSR to Equal-Weight from Overweight. Macroprudential regulation is causing a tightening in the Australian housing cycle, argue analysts at Morgan Stanley. They have reduced their projections in response. A reduction in construction activity, in particular for multi-dwellings, has now been incorporated. Industry view is In-Line. Further downgrades to aluminium price forecasts have further impacted on estimates.
Citi Group and UBS downgraded Veda (VED) to Neutral from Buy. Equifax has upgraded its offer to $2.825 a share from the initial offer of $2.70. The board has agreed to recommend the revised offer, subject to the independent expert’s opinion and assuming it results in a binding offer. Veda’s stock had weakened prior to the offer, Citi observes, because of the collective effects of lower FY16 guidance and an unclear outlook in terms of the path to critical mass.
The above was compiled from reports on 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.
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