Buy, Hold, Sell – What the Brokers Say

Founder of FNArena
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If recommendation upgrades and downgrades from stockbroking analysts are our guide, then the mood surrounding the Australian share market decisively soured last week. Not only did FNArena register only 5 upgrades against 12 downgrades for individual ASX-listed stocks, 8 of the downgrades shifted to Sell. Delivering some offset is the observation 4 of the 5 upgrades moved to Buy.

So who is responsible for all those fresh Sell ratings? Mining companies, mostly, plus High PE high flyers a2 Milk and REA Group. Retailer Premier Investments received one new Buy and Sell rating each.

Positive revisions to earnings estimates are plenty, with mining stocks at the centre, leading to sizeable increases. Fonterra and Premier Investments equally make their presence felt. This time the numbers are of lesser magnitude on the negative side with a2 Milk leading the week’s table which remains dominated by the mining sector, interspersed by Webjet and Qube Holdings.

In the good books

1. MONADELPHOUS GROUP LIMITED (MND) was upgraded to Buy from Neutral by UBS B/H/S: 1/2/1

Following the recent underperformance of the share price, UBS upgrades to Buy from Neutral. The broker expects Monadelphous to return to sales growth in FY20 as it transitions into iron ore replacement and sustaining capital projects from LNG construction. Updated analysis indicates that up to 87% of the broker’s FY20 sales forecasts may already be secured by long-term maintenance contracts or construction projects awarded through FY19 and FY20 to date. Target is reduced to $18.15 from $18.50.

In the not-so-good books

1. NATIONAL AUSTRALIA BANK LIMITED (NAB) was downgraded to Neutral from Outperform by Macquarie B/H/S: 2/4/1

Following the relative outperformance in the shares over the last quarter Macquarie observes National Australia Bank’s discount to its peers has narrowed. While the bank is less exposed to challenging retail banking trends, the broker envisages minimal growth in earnings per share. With the new CEO starting later this year Macquarie also assesses the potential upside from material cost reductions is limited. Hence, the rating is downgraded to Neutral from Outperform. Target is raised to $30 from $28.

2. REA GROUP LIMITED (REA) was downgraded to Lighten from Hold by Ord Minnett B/H/S: 2/2/1

Ord Minnett has checked depth penetration data, finding overall Premiere advertising penetration has increased to 20.0%, up from 19.4% in late August. Total depth penetration was up 44.1% for REA Group. The broker downgrades to Lighten from Hold on valuation, with the stock trading well above the $90 target.

Earnings forecast

Listed below are the companies that have had their forecast current year earnings raised or lowered by the brokers last week. The qualification is that the stock must be covered by at least two brokers. The table shows the previous forecast on an earnings per share basis, the new forecast, and the percentage change.

The above was compiled from reports on FNArena. The FNArena database tabulates the views of seven major Australian and international stock brokers: Citi, Credit Suisse, Macquarie, Morgan Stanley, Morgans, Ord Minnett 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 regard to your circumstances.

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