- Switzer Report - https://switzerreport.com.au -

The broker wrap: only two stocks rate buy

Posted By Rudi Filapek-Vandyck On In Markets,Shares | No Comments

Changes to stockbroker ratings in the past week

[1]Changes in broker ratings were weighted to the downside over the past week, with brokers in the FNArena database making 11 downgrades compared with just five upgrades. Total Buy ratings have again dipped under the 50% level and now stand at 49.9%.

Upgrade

AWE Limited (AWE) enjoyed an upgrade to Neutral from BA Merrill Lynch given the upcoming catalyst of drilling at some of the company’s shale oil prospects.

BA-Merrill Lynch was also active on the industrial side of the market, upgrading ratings for Cochlear (COH), DuluxGroup (DLX) and Stockland (SGP). For Cochlear the move to Neutral was based on the view that negatives such as volume weakness are now factored into the market, meaning no new catalyst to drive further underperformance.

Increased top line growth expectations for Dulux caused BA-ML to lift earnings forecasts and its price target for the stock. The changes suggest a good enough outlook to justify a Buy rating.

The confirmation that residential lot sales have been holding up in a tough market was viewed positively by BA-ML, which upgraded Stockland to Buy.

Back on the resources side, UBS upgraded Mincor (MCR) to Neutral given a positive view on management’s ability to deliver some upside for the stock.

Downgrade

On the downgrade side, Deutsche Bank has lowered its rating on Commonwealth Bank (CBA) to Neutral given the view value is no longer compelling at current levels. As well, Deutsche suggests while CBA’s upcoming profit result should be solid, there is unlikely to be enough upside to justify the current premium to peers.

Meanwhile, Citi cut its rating on National Australia Bank (NAB) to Hold, a valuation call as the share price has moved beyond Citi’s target, leading the broker to suggest there is better relative value in Westpac (WBC) at present.

Property-related stocks also saw a number of downgrades, with Credit Suisse cutting its rating on both Commonwealth Property Office (CPA) and Investa Office (IOF) to Underperform. The changes reflect the fact office REITs have enjoyed strong gains over the past two years, so closing the gap between valuation and book value. An exit from European assets remains a catalyst for Investa, but in both cases Credit Suisse suggests there is not enough total return on offer to justify a higher rating.

BA-ML has also been active in downgrading ratings in the property sector, cutting GPT (GPT), Goodman Group (GMG) and Lend Lease (LLC) to Sell. While its adjusted risk assumptions generate price target increases in each case, relative valuations drive the changes in ratings.

Citi has also gotten in on the act, downgrading Westfield Retail Trust (WRT) to Hold. The change reflects recent share price gains.

Telstra (TLS) has also been downgraded by BA-ML to Sell, as the broker sees limited valuation upside following a recent share price rally. Once differences in earnings per share payout ratios have been factored in, the broker also suggests the yield on Telstra is in-line with the All Industrials average.

Among resource stocks, Macquarie has downgraded Northern Iron (NFE) to Neutral post the company’s quarterly production report. The report itself led to modest cuts to earnings forecasts, while recent share price gains have the stock within 10% of the broker’s price target.

Saracen Minerals (SAR) was downgraded by BA-ML to Hold given lowered full-year production guidance accompanying the June quarter production report. With the Red October development now likely to take longer than previously expected, earnings forecasts and the price target have also been cut.

Changes to earnings forecasts (EF) in cents per share

[2]Note: FNArena monitors eight leading stockbrokers on a daily basis. The eight experts are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, RBS and UBS.

Important information: 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. Anyone should consider the appropriateness of the information in regards to their circumstances.

Also in the Switzer Super Report: