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The broker wrap: nine upgrades in the past week

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

Changes to stockbroker recommendations in the past week

Recommendations have bucked the trend in recent days, with stock upgrades finally outnumbering downgrades.

Changes to broker stock ratings have slowed down significantly following profit season, with the eight brokers in the FNArena database delivering just six downgrades and nine upgrades over the past week. Total Buy recommendations now stand at 51.83%.

Upgrades

Airline stocks feature among the upgrades, with Macquarie lifting its ratings on both Air New Zealand (AIZ) and Qantas (QAN) to Buy. The former was an upgrade from Sell and the latter from Neutral, the changes stemming from adjustments to foreign exchange assumptions that boosted earnings estimates and price targets.

Building material stocks also featured, with Credit Suisse upgrading both Boral (BLD) and James Hardie (JHX) to Buy. For Boral the broker is attracted to cyclical leverage and has lifted estimates and price target, while for James Hardie the attractions include additional capital management initiatives, strong free cash flow and a net cash position.

Elsewhere, Macquarie has upgraded Dexus (DXS) to Buy given recent share price weakness, while Citi has lifted its rating on FKP Property (FKP) to Neutral for similar reasons as the stock has lost more than 19% over the past month.

Deutsche Bank sees enough value in Tatts Group (TTS) to upgrade its rating to Buy. Along with a positive valuation, Deutsche sees potential for some upside from the recent Tote Tasmania and Lottery acquisitions.

For United Group (UGL), Credit Suisse has turned more positive following increases to earnings estimates across the Engineering and Construction sector. An improved earnings outlook is enough for the broker to lift United to its top pick in the sector.

Citi has reviewed the supermarket plays and lifted Woolworths (WOW) to Buy as a result. Scale benefits relative to Coles should provide Woolworths with an ongoing advantage in the broker’s view.

Downgrades

Among the downgrades, Macquarie has moved to a Neutral recommendation on Ampella Mining (AMX) citing valuation grounds, this given a cut to forecasts from factoring in revised foreign exchange and commodity price assumptions.

Similarly, Macquarie has cut St Barbara (SBM) to Sell following revisions to its model assumptions. The downgrade has been supported by a cut to the broker’s price target.

Beach Energy (BPT) has more risks associated with the Nappamerri shale project than the market is pricing in according to BA Merrill Lynch. These risks include costs, competition and technology and see BA-ML’s rating downgraded to Sell.

BA-ML has also downgraded Carsales.com (CRZ) to Neutral, largely due to valuation issues given recent share price strength. As well, the broker has some minor concerns about the recent Torpedo7 investment as it is outside the traditional focus on classifieds businesses.

Relative valuation has prompted JP Morgan to downgrade Centro Retail (CRF) to Neutral following its 9% outperformance since last December. Value is also the catalyst for Macquarie’s downgrade of Qube Logistics (QUB) to Sell, as on the broker’s numbers the stock is trading at twice the earnings multiple of the small cap index at present.

Changes to earnings forecasts (EF)

Note: FNArena [1] monitors eight leading stockbrokers on a daily basis. The eight 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. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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