Weekly Reports | Sep 18 2017
By Rudi Filapek-Vandyck, Editor FNArena
The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.
For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.
Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.
Period: Monday September 11 to Friday September 15, 2017
Total Upgrades: 7
Total Downgrades: 8
Net Ratings Breakdown: Buy 41.41%; Hold 42.28%; Sell 16.31%
The Australian share market remains desperately in need of a powerful catalyst, but it isn't coming from the stockbroking community. For the week ending Friday, 15th September 2017, FNArena registered seven upgrades in rating by analysts, and some of these involve companies whose share price was considered to have become too cheap, but the other side of the ledger still showed eight downgrades.
CommBank was among those receiving an upgrade, but it was also the sole upgrade that only went up to Neutral. All others went to Buy, including for Macquarie, Link Administration, Downer EDI and Cleanaway Waste Management.
The flipside saw four downgrades (50%) sink to Sell ratings, including Bank of Queensland, Myer and Newcrest Mining.
Myer and Smartgroup took the honours for target price upgrades for the week, both enjoying a lift above 10%, followed by, at arm's length, Regis Resources, Cleanaway Waste Management and Downer EDI. The negative side only involves two names: Vocus Communications and Commbank, and both only experienced relatively minor cuts to consensus targets; less than -2% in both cases.
Myer also ranks second for positive revisions to earnings estimates, only beaten by Macquarie Atlas Group, followed by Orocobre, Senex Energy and Santos. While those adjustments remain sizeable, the negative side was again rather tepid. Sigma Healthcare was the week's biggest loser with a reduction of no more than -1.26%.
That's the good news story from September: earnings estimates have stopped falling, as have price targets.
COMMONWEALTH BANK OF AUSTRALIA ((CBA)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/6/2
Macquarie observes the bank's historical premium of around 10-15% has been eroded in recent months and CBA is now on a similar multiple to its major bank peers.
While recognising the risk of near-term underperformance, the broker envisages current valuations are more appealing.
While considering it too early to have an Outperform recommendation, the broker believes it justified to upgrade to Neutral from Underperform. Target is reduced to $78.00 from $80.50.
CLEANAWAY WASTE MANAGEMENT LIMITED ((CWY)) Upgrade to Add from Hold by Morgans .B/H/S: 2/4/0
The CEO has highlighted the robust and growing revenue, operating leverage and a strong balance sheet. Morgans revises its forecasts to align with the company's expectations. This results in around 2% upgrades to FY19-20 forecasts.
As well as a change in valuation methodology, this lifts the target to $1.60 from $1.37. The broker upgrades to Add from Hold given the positive momentum being generated.
DOWNER EDI LIMITED ((DOW)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/2/1
The company's FY17 result demonstrated the core business is performing well with a robust outlook.
While Deutsche Bank believes the company faces integration issues with the Spotless ((SPO)) acquisition and a potential downgrade to Spotless' FY18 guidance, this is considered well-known and reflected in the share price.
The broker upgrades to Buy from Hold and raises the target to $7.45 from $6.62.
HEALTHSCOPE LIMITED ((HSO)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/2/1
Ord Minnett believes Healthscope will face another challenging year as earnings are set to contract, given a number of Victorian hospitals are tracking below plan.
Value has emerged, however, as the stock is trading well below is 2014 IPO price despite adding more than $500m in new capacity.
The broker upgrades to Buy from Hold. Target is $2.