Changes to stockbroker ratings in the past week

It was a quiet week for changes to stock ratings with the eight brokers in the FNArena database upgrading just three recommendations while downgrading five. Total Buy ratings now stand at 49.31%.

Upgrades

Credit Suisse was responsible for two of the upgrades, lifting ratings on both OrotonGroup (ORL) and QBE Insurance (QBE) to Buys. For Oroton, the upgrade is a valuation call and comes on the back of recent weakness in the company’s share price. This weakness is giving investors the change to acquire a quality retailer at a more attractive price in the broker’s view.

For QBE Insurance, the value on offer is also improving, while premium rate rises are starting to flow through and balance sheet pressures for the group are also easing. Benign weather is also helping the investment case for QBE at present, according to Credit Suisse.

Seven West Media (SWM) was the other upgrade for the week, with Citi lifting it to a Buy. A tough operating environment means things could get worse before they get better, causing Citi to adjust earnings estimates and its price target.

While there is scope in Citi’s view for Seven West to make a rights issue to address balance sheet concerns, the broker argues the share price is already factoring this in and value is thus seen as attractive at current levels.

Downgrades

On the downgrades side, Macquarie has cut its rating on Cabcharge Australia (CAB) to Sell, reflecting the potential for earnings to be impacted if credit card surcharge levels are capped, as might be the intention from authorities in Australia. Its price target has been cut to reflect the potential earnings impact, while the uncertainty leads Macquarie to suggest the shares are more likely to underperform.

Deutsche Bank has downgraded Cochlear (COH) to Sell on market share concerns stemming from the N5 recall and the impact this has had on the company’s reputation in the market. Earnings will slip in fiscal 2013 in Deutsche’s view and the stockbroker has cut its forecasts and price target to reflect this expectation.

While the announcement of a capital raising by Echo Entertainment (EGP) has caused Credit Suisse to adjust its earnings forecasts and price target, it is recent share price appreciation that has caused the broker to downgrade it to a Sell. The gains of late make the stock too expensive in the broker’s view (even though the cause is takeover speculation).

Credit Suisse has also downgraded Specialty Fashion (SFH) to Sell given the expectation that ongoing retail headwinds will impact earnings for some time.

Fletcher Building (FBU) has some franchise strength in New Zealand that probably deserves a premium multiple in the view of UBS, but a review of the broker’s model sees earnings forecasts cut through fiscal 2013.

The changes mean a reduction in price target and given few signs yet of any cyclical upturn, UBS has downgraded it to a Neutral.

Changes to earnings forecasts (EF) in cents per share

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

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