The Australian share market continues to show a fairly consistent pattern as we move through the local reporting season: share prices continue to rise while stock analysts continue to issue more downgrades than upgrades.

The week past saw 10 upgrades being outnumbered by 33 downgrades. Nothing new as this has been the trend since the rally began in 2012.

On the way up

Bradken (BKN) had a very busy week last week, putting out an interim report with an upgraded guidance. Both Macquarie and Credit Suisse upgraded forecasts and their calls to Buy post the release, noting a strong result, a good contribution from Austin Engineering (ANG), a healthy order book, lower costs and a generally improved outlook. Conversely, Deutsche Bank downgraded its call to Hold from Buy given flat half-on-half revenue and a less than hoped for improvement in margins. Earnings forecasts were lifted. The changes leave the stock in positive sentiment territory in the database on four Buys, two Holds and one Sell.

It was also a double up week for Goodman Fielder (GFF), with Deutsche Bank upgrading its recommendation to Buy from Hold on an improving outlook and the belief that recent price increases will have a positive effect from the next half onwards. Macquarie downgraded its call to Hold from Buy, noting that while things are improving, it now wants to see these improvements move on to the bottom line before it turns more constructive again. The stock sits in positive sentiment territory in the database on four Buys, two Holds and two Sells.

GWA Group (GWA) was lucky to get an upgrade and not a corresponding downgrade, with CIMB lifting its call to Buy from Hold. The broker sees a number of positive catalysts and also believes the recent restructuring announcement will provide a rolling uplift to earnings margins. Sentiment on the stock is neutral. Skilled Group (SKE) is next on the list, with Deutsche moving up to Buy from Hold on the back of a strong result that had the broker noting cost cutting initiatives are continuing to yield benefits. The stock rates straight buys in the database, so enjoys a perfect sentiment read.

JP Morgan upgraded Tassal Group (TGR) to Hold from Sell after a rise in the Norway fresh salmon price allowed the broker to lift its price target. Sentiment has improved to an even neutral. Credit Suisse lifted Westfield Retail Trust (WRT) on the belief that the sector’s surge through book value indicates an increasing appetite for yield. With WRT languishing at an 8% discount to net asset value, the broker thinks it’s one of the A-REITS to watch. Sentiment has moved to a slightly more positive setting post the upgrade.

Finally, Macquarie lifted its call on Worley Parsons to Buy from Hold after a rolling forward of the valuation pushed the price target high enough for a valuation call to be made. Sentiment for WOR has moved into positive territory following the upgrade, with the database showing three Buys, two Holds and two Sells.

On the way down

Alumina Ltd (AWC) leads off the downgrade portion of the report, with Credit Suisse moving from Buy to Sell on otherwise well received news the company was looking to place 366 million shares to CITIC at $1.23 a shares to raise $452 million. In the words of the broker: “Balance sheet fixed, but not earnings”, with the broker further arguing the equity placement has in fact worsened the earnings outlook for Alumina as it further dilutes existing shareholders. The stock managed to hang on to its positive sentiment read given the four Buys versus two Holds and two Sells recorded in the database.

Ansell (ANN) was dropped to Hold from Buy by both Macquarie and Citi on the back of what both brokers found to be an unimpressive 1H effort that fell 17% short of each on the net profit line. The downgrades move the stock into negative sentiment territory. ASX (ASX) was chopped to Sell from Hold by CIMB, the broker noting operating conditions remain soft and there are regulatory reviews of structures and payment systems that also create near-term uncertainty. The downgrade pushed the stock deeper into negative sentiment territory.

Commonwealth Bank (CBA) also found its way to Sell from Buy on CIMB’s books, the broker thinking the run in the share price after the 1H result release was well overdone. Sentiment moves further into negative territory. Computershare (CPU) was cut to Hold from Buy by JP Morgan on the view that any leverage there might be to corporate activity and rising interest rates is now in the share price. A positive sentiment skew is maintained.

CSL (CSL) was unfortunate enough to be greeted with two downgrades to Hold from Buy by UBS and BA-ML. Both brokers are of the view that any sort of upside surprise that could still be generated is already in the price. Despite the downgrades, broker sentiment still remains positive.

JP Morgan also downgraded Domino’s Pizza (DMP), Downer EDI (DOW) and GPT (GPT) to Hold from Buy. The problem with Domino’s is that the broker thought last week’s result was of a pretty low quality, the broker citing lower same store sales growth and higher capex. This means more money needs to be spent on new stores just to maintain the current growth trajectory. The downgrade leaves the stock on a neutral footing. Downer was dumped on a valuation call, the broker otherwise happy with the result and the current progress being made. Sentiment remains positive. Lastly, GPT was dropped on a weak 2012 result, with the broker thinking that after the earnings downgrades post result it will be hard for the company to deliver anything but a flat performance versus peers in the year ahead.

UBS has downgraded Harvey Norman (HVN) to Hold from Buy, sending the stock deeper into negative territory, the broker noting the stock has outperformed the market by some 18% over the month and 15% over the quarter. Credit Suisse made the same call a week prior. IOOF Holdings (IFL) went to Sell from Hold on JP Morgan’s books, the broker blaming a run in the share price and the market’s general underestimation of the margin difficulties facing the wealth manager. Sentiment remains positive post the move.

JB HiFi (JBH) was hit with a double dose of bad news, downgraded to Hold from Buy by UBS and to Sell from Hold by Credit Suisse. UBS cites the fact shares have outperformed the market by 16% since the end of October, while the broker otherwise sees some scope for positive earnings revisions as long as discounting activity remains reasonable. Credit Suisse made its call on valuation grounds. The combined downgrades have pushed the stock firmly into negative sentiment.

Leighton Holdings (LEI) was downgraded to Hold from Buy by BA-ML on valuation grounds despite a fairly well received FY profit result. Most brokers seem to agree that at least the near-term outlook remains challenging, while the valuation to most looks a bit full. A negative sentiment footing is maintained. OzMinerals (OZL) was cut to Sell from Hold by Deutsche, also a valuation call. The broker thinks the current dividend payment is not sustainable and the company needs to admit this and start preserving some cash. Broker sentiment is now neutral for the stock.

Stockland (SGP) was cut from Buy to Hold by Deutsche, which blames a combination of impairments, changed capitalised interest policies and cessation of the buyback, which are likely to put a lid on earnings upside. Sentiment lowers to Neutral post the downgrade.

Super Retail (SUL) was cut to Sell from Hold by Citi given shares have rallied 22% over the last three months versus the broader market at 11%. Credit Suisse made the same exact move for the same exact reason the week before. Post the downgrades, the stock has fallen to a neutral sentiment read.

Lastly, BA-ML downgraded Toll Holdings (TOL) to Hold from Buy, noting first half earnings margins are now expected to fall to 5.4% from 5.8%, while most of the expected earnings growth is already reflected in the share price. Both Macquarie and CIMB downgraded the week prior, the former to Hold and the latter to Sell, given the same concerns about valuation versus limited short-term growth prospects. The downgrades have pushed the stock on to a decidedly negative sentiment footing.

Note: FNArena monitors eight leading stockbrokers on a daily basis and the tables below are based on data analysis from the week past concerning these eight equity market experts. The eight experts in casu are: BA-Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie, CIMB (former RBS) and UBS.

Important: 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. Consider the appropriateness of the information in regards to your circumstances.