The broker wrap: 11 stock buys vs. 17 sells

Founder of FNArena
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It’s been a busy week for changes to broker recommendations as the earnings season draws to an end, with 19 companies upgraded and 51 downgraded by the eight brokers covered in the FNArena database. Total Buy ratings of listed companies now stand at 52.15%, well down from 53.86% last week.

Changes to stockbroker ratings in the past week

Upgrades

Four companies were lifted by more than one broker in the past week. These were: Bendigo and Adelaide Bank (BEN), CSL (CSL), David Jones (DJS) and Toll Holdings (TOL).

For Bendigo Bank, both RBS Australia and BA Merrill Lynch upgraded to Hold recommendations from Sell previously, the former as the recent profit result showed some signs of stabilisation and the latter on valuation grounds post recent share price weakness. Across the market, price targets and earnings estimates for the bank were adjusted.

In contrast to a better result from Bendigo Bank, CSL delivered strong earnings thanks to albumin and specialty products performing well. Brokers lifted earnings estimates and price targets on the back of the result and both Macquarie and BA-ML now see enough value to upgrade to Buy.

For David Jones (DLS), it was the turn of both UBS and RBS Australia to upgrade to Neutral ratings from Sell previously, this to reflect both better value on the back of recent share price weakness and the company having better positioned itself for stronger 2013 results by clearing excess inventory.

Toll Holdings (TOL) has also improved its position and with potential for new contracts and some scope for positive earnings surprise relative to low expectations. Both Macquarie and Deutsche Bank upgraded it to Buy. This was partially offset by Credit Suisse downgrading it to Neutral from Buy on valuation grounds.

Among the other upgrades, a strong result from Ausenco (AAX) prompted UBS to reverse a recent downgrade and move to Buy from Sell, almost doubling its price target for the stock in the process. A similarly solid Coca-Cola Amatil (CCL) result, particularly given tough markets and a dispute with a key customer (Woolworths), was enough for Credit Suisse to upgrade to Hold.

Emerging value following recent underperformance caused Citi to upgrade Oil Search (OSH) to Buy, while around the market, earnings estimates and price targets for the stock were largely increased following a better-than-expected profit result.

Super Retail Group (SUL) delivered one of the standout results in the consumer discretionary sector and this lead BA-ML to upgrade it to Buy.

Downgrades

Companies copping a cut from more than one broker were Charter Hall Office (CQO), Envestra (ENV), Fleetwood (FWD), iiNet (IIN), Industrea (IDL), Kingsgate Consolidated (KCN), Ramsay Health (RHC), Tatts Group (TTS), Woodside (WPL) and Wotif.com (WTF).

Valuation was behind the downgrades to both Charter Hall Office and Envestra, with Credit Suisse and Citi seeing limited share price upside from current levels for the former, even allowing for current corporate interest and RBS and Macquarie taking similar views with respect to the latter.

Fleetwood’s solid earnings outlook is now priced in, according to RBS, a view shared by both UBS and Credit Suisse. For iiNet, increasing competitive pressures means the result was a little on the disappointing side for both RBS and Credit Suisse, while both also see less relative value in the stock at current levels.

A poor profit result from Industrea meant earnings estimates across the market have been cut significantly, leaving the earnings outlook unattractive compared with its peers. The earnings miss has also raised the question of management credibility in the view of BA-ML.

Kingsgate Consolidated’s earnings were broadly in line with expectations but the company surprised by announcing a capital raising that prompted cuts to estimates and targets. Also, Kingsgate faces a challenging year from an operational perspective in the view of both Citi and BA-ML.

Uncertainty with respect to the outcome of proposed changes to private health insurance pose enough risks for Ramsay Health that both Macquarie and Deutsche Bank downgraded to Hold. Valuation was behind the downgrade of Credit Suisse.

Limited upside potential, especially given some recent share price strength, saw both Macquarie and Citi downgrade Tatts to Sell, while less value following recent gains was enough for Citi and Credit Suisse to downgrade Woodside to Neutral in both cases. A similar story is behind downgrades by Macquarie and BA-ML on Wotif.com, as tough market conditions suggest limited upside from current share price levels.

Changes to earnings forecasts (EF)

Note: FNArena monitors eight leading stockbrokers on a daily basis. These 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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