Buy, Sell, Hold – what the brokers say

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Reporting season continues to bring more downgrades than upgrades as the market remains hard to impress.

In the good books

Macquarie upgraded BHP to Outperform from Neutral. BHP’s earnings beat the broker by 13%. Lower costs for iron ore and copper contributed and a strong performance was posted by the South32 assets. Forecast capex has been cut further, which should allow a cash surplus to emerge.

Morgans upgraded Flight Centre (FLT) to Add from Hold. The first half was better than the broker expected and full year guidance looks comfortably achievable. Morgans has greater confidence in the outlook now.

Morgan Stanley upgraded Tatts Group (TTS) to Equal-weight from Underweight. After further review of the first half results, Morgan Stanley is upgrading to Equal-weight from Underweight, raising the target to $4.10 from $3.10. The broker considers the opportunity to redeploy the Victorian pokies compensation through either a capital return, buy-back or increased pay-out ratio is a large catalyst.

In the not-so-good books

Citi downgraded BHP to Neutral from Buy and Morgans downgraded BHP to Hold from Add. The interim result was ahead of the Citi’s estimates but it downgraded because of the challenges in iron ore and oil in 2015. Morgans has rerated BHP in the light of recent share price appreciation.

Macquarie downgraded Brambles (BXB) to Neutral from Outperform. Brambles’ result missed the broker due to increased plant and transport costs for Pallets Americas. The FY15 guidance range has been retained but the broker sits at the bottom end.

Morgan Stanley downgraded Flight Centre (FLT) to Underweight from Equal-weight. The broker says Flight Centre’s golden run is coming to an end. Nearly every consumer company has reported a solid start to 2015 but Flight’s growth has merely stabilised, as the lower Australian dollar and online competition impact.

UBS downgraded Oil Search (OSH) to Neutral from Buy. 2014 results were in line with the broker. UBS was surprised at the US5c special dividend, which brought the 2014 payment to US14c, and represented a 44% pay-out. Long-term growth outlook is excellent in the broker’s view but the stock is considered fully valued for now.

UBS downgraded Rio (FIO) to Neutral from Buy. UBS notes the share price has recovered from the trough in December and has outperformed the iron ore price by 30%. While expecting the stock to be underpinned by the US$ 2 billion buy-back and 4.6% dividend yield, the broker believes higher commodity prices are needed for further meaningful outperformance as there are few company-specific catalysts.

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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