Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

This story features SPARC TECHNOLOGIES LIMITED, and other companies. For more info SHARE ANALYSIS: SPN

By Chris Shaw

With profit reporting season underway brokers have responded by making significantly more downgrades to ratings than upgrades over the past week. Only five stocks enjoyed upgrades in ratings compared to 18 downgrades. Total Buy recommendations now stand at 49.52%.

Among the upgrades was Acrux Limited ((ACR)), where RBS Australia has moved to a Buy rating from Hold. The change comes as recent share price weakness has improved the value on offer, which has been more than enough to offset cuts to earnings forecasts and price target on revised market share assumptions.

A review of expectations for building materials stocks has seen JP Morgan adjust earnings and price target for Fletcher Building ((FBU)). Allowing for the changes the broker still sees solid upside potential from current levels and so upgrades to a Buy rating from Neutral.

ResMed ((RMD)) delivered good 4Q results this week and BA Merrill Lynch expects the positive momentum evident in the period will continue into the first half of 2013. Increases to earnings estimates and price target have supported an upgrade in rating to Buy from Hold.

Shares in SP Ausnet ((SPN)) have weakened of late and UBS suggests the falls have likely been in response to concerns with respect over potential claims stemming from bushfires in Victoria in 2009. Given insurance cover appears adequate the share price weakness is overdone according to UBS, so rating is upgraded to Buy from Neutral.

Valuation is the drive of Deutsche Bank's upgrade of Westfield Group ((WDC)) to Buy from Hold, the change coming post a review of the A-REIT sector. Changes to forecasts have driven an increase in price target for Westfield, which improves the upside on offer in Deutsche's view.

Deutsche was also active in downgrading ratings for A-REIT stocks, cutting recommendations on Dexus ((DXS)), Charter Hall Group ((CHC)), Commonwealth Property Office ((CPA)), GPT ((GPT)) and Investa Office ((IOF)).

Deutsche has moved to a Sell rating from Neutral in each case with the exception of Charter Hall, where the broker has downgraded to Hold from Buy on valuation grounds. Valuation has been a driver of the other ratings downgrades as well, as each stock now appears relatively expensive following gains for the sector in general.

Among the other downgrades in ratings the most were experienced by Tabcorp ((TAH)). BA-ML, UBS. Macquarie and Credit Suisse all cut their ratings, the former to Sell from Hold and the others to Neutral from Buy. While full year earnings were as expected there is increased earnings risk for Tabcorp in coming years and brokers see this as limiting any potential outperformance.

Telstra ((TLS)) was also downgraded by Credit Suisse to Neutral from Buy, as following an in-line earnings result the broker suggests the market is now pricing in all potential valuation upside. This is reflected in the share price trading near Credit Suisse's price target.

Stockland ((SGP)) met expectations with respect to full year earnings but disappointed on guidance for the coming year, enough for both UBS and Credit Suisse to move to Neutral ratings from Buy previously. The downgrades reflect the view a tough year in FY13 will limit scope for share price outperformance.

JP Morgan has adjusted earnings forecasts across the building materials sector, the changes for Boral ((BLD)) resulting in a cut in price target. The share price of Boral has rebounded following a recent profit warning and with less value on offer the broker downgrades to a Neutral rating from Buy.

Cochlear ((COH)) has also been downgraded by JP Morgan to a Sell rating from Neutral. The change came after what the broker viewed as an uninspiring full year profit result, which showed evidence of slowing growth and so generated cuts to earnings estimates and price target.

Credit Corp Group ((CCP)) saw its rating cut by JP Morgan to Neutral from Overweight following the release of full year earnings. The result met previous guidance but was below consensus and with the stock now trading close to its valuation the broker sees limited scope for outperformance.

For UBS, a solid profit result from Challenger Diversified ((CDI)) was not enough to prevent a downgrade in rating to Hold from Buy. The stock continues to offer an attractive yield but recent share price strength limits the value on offer in the broker's view.

Some uncertainty stemming from ongoing regulatory red tape has prompted RBS Australia to downgrade Tissue Therapies ((TIS)) to Hold from Buy, as an expected approval is now going to be pushed back. RBS has also cut its price target to reflect the news.

With respect to price target changes the largest was an increase for Investa Office ((IOF)), while Tabcorp's target fell the most on the back of cuts to broker earnings forecasts post the group's profit result.

Changes to earnings forecasts on the upside were also most significant for Investa Office, while cuts to estimates have been heaviest for Aquarius Platinum ((AQP)), Transurban ((TCL)) and Tabcorp as forecasts have been adjusted to reflect recent profit results. 

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=120,104,120,100,81,141,149,128&h0=71,106,79,121,92,88,143,114&s0=48,22,33,8,40,35,10,13″ style=”border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid” />

Click to view our Glossary of Financial Terms