A mixed bag from the brokers this week, with downgrades continuing for a number of resources companies, and upgrades for companies in the consumer discretionary sector. Woolworths was a notable downgrade, on valuation grounds and ongoing concerns about its Masters hardware business.
In the good books
Village Roadshow (VRL) was upgraded by Macquarie from Neutral to Outperform, noting the company has an enviable portfolio and remains the market leader in each of its businesses. 2015 is expected to be a significant year for the box office and the outlook for Village Roadshow's distribution business is improving. The stock is now trading at more than a 20% discount to peer Ardent Leisure (AAD) and the broker thinks this is a buying opportunity. The price target is raised to $8.50 from $7.60.
Credit Suisse upgraded Aristocrat Leisure (ALL) to Neutral from Underperform. The broker admits it has erred to the conservative side on gaming stocks to date, favouring lower PEs and lower growth, but strong cash flow, over high growth risks. But the broker believes Aristocrat's VGT acquisition is transformational, being highly accretive and allowing ALL to harvest cash flow to pay down debt. A potential risk is VGT's high profit margin on a low customer base, given one little change in gaming machine yield assumption can affect an exponential change in value, but the broker assumes short term yield trends will be benign. Target rises to $6.00 from $4.80.