Buy, Sell, Hold – what the brokers say

Editorial director of Switzer
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Trading updates or results dominated movements over the past week, with The Reject Shop, Boral and ResMed all announcing news.

News from the results were mixed. The Reject Shop announced that sales had risen, but profit would probably be down, as Boral said first half profit would be significantly greater than last year – projected $90 million versus $58 million – but not to expect too much from the second half.

In the good books

Late last week The Reject Shop (TRS) announced that sales for the first half to December 2013 were up $385.5 million or 17.7% over the prior comparative period. However, net profit after tax for the half is expected to be between $16.6 million and $16.9 million, which is down on the $20.1 million for the previous corresponding period. There was a sell off following the announcement but Credit Suisse upgraded the company to Neutral from Underperform, believing the valuation is now more appropriate. Credit Suisse analysts are pointing the finger at an increasingly more competitive environment that seems to be hurting the company in traditional hard goods categories.

JP Morgan upgraded Fletcher Building(FBU) to Neutral from Underweight.  The broker now expects the residential and non-residential upswing in New Zealand to persist for longer. Moderate short-term earnings downgrades were made, but long-term there’s a rise in forecast cash flow and JP Morgan has upgraded the price target to NZ$8.50 from NZ$8.00.

Credit Suisse upgraded Boral (BLD) to Neutral from Underperform following its first-half trading update. The broker has increased FY14 earnings forecasts by 7%. Credit Suisse sees the company making good progress on controlling the “controllables” – reducing overheads, simplifying the structure and conserving capital.

In the not-so-good books

CIMB Securities downgraded ResMed(RMD) to Hold from Outperform following third quarter results that were below the broker’s expectations. Pricing continued to be affected by competition. CIMB expects ResMed is well placed to offset the pressures, but suspects the stock will be volatile over the short to medium term. The price target is lowered to $5.40 from $6.44 and CIMB moves to a Hold rating pending greater visibility on earnings.

The same news that led Credit Suisse to upgrade The Reject Shop, prompted UBS to downgrade it to Neutral from Buy. The company grew first half sales by 18% but like-for-like was flat, softer than budgeted in the lead up to Christmas. UBS estimates that the earning contribution per established store has been in decline since the second half of 2012. The company cites new stores that are smaller than average, but UBS thinks investors need more assurance that this is not a deeper problem.

The above was compiled from reports on the FNArena database, 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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