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Buy, Sell, Hold – what the brokers say

There have been more downgrades than upgrades in the first half of the week mostly on earnings revisions. CSR got an upgrade based on its exposure to the Australian residential construction cycle.

In the good books

Morgans has upgraded CSR (CSR) to Add from Hold. Morgans’ analysts have revisited their projections and this has led to increased forecasts. Adding to the stock’s appeal, the analysts observe CSR offers the most direct exposure to the Australian residential construction cycle, while avoiding exposure to construction materials. The analysts remain concerned about the latter, given levels of activity from the non-residential and engineering construction segments.

Macquarie has upgraded Wesfarmers (WES) to Neutral from Underperform. Macquarie reviews the challenges and opportunities in the wake of Glencore Australia’s closure of its coalmines for three weeks in mid December. The broker believes Wesfarmers is well placed for a turn around in the event of an improvement in the coal market and has the ability to raise and deploy capital more efficiently than its peers.

In the not-so-good books

Macquarie downgraded Cardno (CDD) to Underperform from Neutral and UBS downgraded to Neutral from Buy. Cardno has indicated its first half profit will be well below the corresponding first half. Macquarie believes the timing and magnitude of the downgrade will shake confidence. Cardno’s first half update included a profit guidance reduction to $27-31 million from a previous $35 million. UBS says several factors contributed to the downgrade but an earnings decline from resources-related work in Australia was the main culprit.

UBS downgraded Panoramic Resources (PAN) to Neutral from Buy. Panoramic has announced it will go ahead with the development of a decline to the ore body at Lanfranchi, providing a new ore source for 16 months. Subsequent development will depend on the prevailing nickel price. It appears the Lanfranchi deposit will not produce nickel at the rate the broker had assumed, thus production forecast cuts follow.

Credit Suisse downgraded Telstra (TLS) to Underperform from Neutral. Credit Suisse observes competitive pressure is mounting for Telstra. The broker reduces mobile revenue forecasts to reflect both lower subscriber growth and revenue per unit. The valuation looks stretched to Credit Suisse and the rating is downgraded to Underperform from Neutral. The dividend yield provides the support in an environment of low interest rates but the broker is wary that, if mobile market share and revenue start to decline, this could be a turning point.

The above was compiled from reports on FNArena, which tabulates the views of eight major Australian and international stock brokers: BA-Merrill Lynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie 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.

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