Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

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By Andrew Nelson

The number of upgrades and downgrades was a bit more sedate last week after the previous week’s New Year shakeout. Seven stocks were upgraded and eight downgraded, while there were also a few significant changes to price targets and earnings forecasts.

We’ll start the roll call with ASX ((ASX)), which was upgraded to Buy from Neutral by analysts at Citi after the broker turned a bit more bullish on market returns for CY13. Citi is expecting retail money to start flowing back into equity markets and funds, which in turn could lift cash market velocity out of its current slump, while otherwise seeing solid support coming from the yield on offer. However, the upgrade is far from enough to lift the stock into positive sentiment territory, with four Holds, three Sells and just one Buy on record in the FNArena Database.

Macquarie took a kinder view of shipbuilder Austal ((ASB)), lifting the stock to Buy from Neutral on news the company has effectively lowered its debt levels after selling its luxury stock boat for an undisclosed sum. While not out of the woods, the company is in a substantially improved position, says the broker.

Our next lucky contestant is Coca Cola Amatil ((CCL)), with Citi upgrading the stock to Buy from Neutral on the back of accelerating volume growth in both Australia and Indonesia. The upgrade lifts the stock to Neutral, sentiment wise, on four Holds, two Sells and two Buys. Citi also boosted Henderson Group ((HGG)) up to Buy from Neutral on the expectation that fund flows will turn positive in FY13 on better performing investment markets. The broker also noted that Henderson is trading at a discount to UK peers.

JP Morgan jumped back on board the Lynas Corp ((LYC)) train, upgrading from Neutral to Buy, citing strong leverage to recovering economies. Despite weak rare earths prices, valuation upside remains compelling and is compensating for the protest actions the company still courts. The stock enjoys positive sentiment in the FNArena Database, with two Buys and two Holds and 28% upside to the consensus share price on display.

Our last two upgrades are miners, with Credit Suisse lifting both Newcrest ((NCM)) and Fortescue ((FMG)) to Buy from Neutral last week.

While the broker was expecting some fairly weak December quarter numbers from Newcrest, it still thinks that given the recent underperformance of the share price and the weak start to FY13 production, investors may be factoring in a larger than likely risk to current FY13 production prospects. A couple days after the upgrade, analysts from CS confirmed the slightly disappointing December quarter production report, but nonetheless remain confident Newcrest can deliver on full year guidance. That confidence seems to be based upon the fact that Lihir and Cadia East will ramp up in the second half, while other projects are expected to return to normal grades and tonnage.

Credit Suisse upgraded Fortescue on the fairly straight forward grounds of recent share price weakness. Conversely, Deutsche Bank downgraded its call to Sell from Neutral after December quarter production fell short of the broker on both the sales and costs lines. CS also remains concerned about the balance sheet and increasing costs. The stock maintains a positive sentiment bias in the database, with five Buys, two Sell and two holds on display.

BHP Billiton ((BHP)) wore two downgrades last week, with both CIMB and Citi dropping to Neutral from Buy despite the company putting out a fairly well received December quarter production report. CIMB makes its call citing a 23% rise in the share price from July 2012 lows, while Citi is also concerned about current valuation multiples and a soft near-term outlook for commodities. The revision has taken some shine off of overall sentiment, with shares now barely in positive territory on two Buys, five Holds and a Sell.

Mirabela Nickel ((MBN)) was also the recipient of two downgrades, with Macquarie and Citi both lowered their calls to Neutral from Buy. A rather subdued outlook for the price of nickel has Macquarie thinking that the stock will find it difficult to outperform in the quarters ahead. Citi’s move is more simple, with the broker noting little upside to its downwardly revised price target. The downgrades leave the stock at flat Neutral, sentiment wise, with three Holds recorded in the database.

Insurance Australia Group ((IAG)) was cut to Sell from Neutral by UBS, the broker citing an increasingly stretched valuation and its view material upside beyond FY13 will prove elusive. The downgrade also moves the stock from Neutral to Negative in terms of the sentiment read, with one Buy fighting off two Sells and five Holds. Suncorp ((SUN)) was also downgraded by UBS, the recommendation dropping to Neutral from Buy on a similarly pessimistic view of near-term upside. UBS’s last “limited upside from here” victim was Transurban ((TCL)), which also slips from Buy to Neutral after the broker took a more conservative approach to modeling upside from growth projects.

Our last two downgrades are miners cut by Citi. Both Kingsgate Consolidated ((KCN)) and PanAust ((PNA)) were trimmed to Neutral from Buy. Citi’s move on Kingsgate was a simple valuation call, while PanAust was a bit more complicated. Citi thought it was a pretty good quarterly result however; FY13 guidance came in well short of consensus, which the broker thinks could well spark a run of downgrades. Sentiment remains positive, with PNA showing five Buys, two Holds and a Sell. KCN is a different story, with three Holds and a Sell keeping sentiment in negative territory.

There were also a couple of price targets that increased by 10% or more last week and four that fell by 10% or more. Boral’s ((BLD)) price target jumped almost 30% after the company pushed through a big guidance increase for 1H profit. Henderson Group’s consensus target was up by 12.4% over the week, with much of it coming as part of Citi’s upgrade.

Conversely, Lynas’ price target moved 17% lower as part of JP Morgan’s upgrade. Grange Resources ((GRR)) found its consensus target 15.7% lower on a fairly neutral quarterly and growing concerns about costs. Gindalbie Metals ((GBG)) consensus price target was trimmed by 12% and Perseus Mining ((PRU)) saw its target slip by 10.3%.

There were a number of significant earnings forecasts changes over the course of last week. Consensus earnings for Gindalbie were lifted significantly off a low base despite the lower price target, while forecasts for Sydney Airport ((SYD)) jumped 22.75 %. On the downside, average earnings forecasts for Macquarie Atlas Roads ((MQA)) are down 115% on soft traffic on the APRR in France and on the Dulles Greenway in the US. Lynas’ forecast earnings are down 80% and Transurban down nearly 38%.

Total Recommendations	Recommendation Changes
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