The latest ASX shares to be downgraded by top brokers

The Australian economy is emerging from the dreaded COVID-19 lockdown and the optimism is firing up the share market!

The S&P/ASX 200 Index (Index:^AXJO) jumped 1.3% on Monday with all sectors finishing in the black, although the runup in share prices is forcing some brokers to downgrade some ASX shares.

Bad news around the corner

One of the latest stocks to be hit with a recommendation downgrade is building supplies group CSR Limited (ASX: CSR).

Citigroup cut its rating on the stock to “neutral” from “buy” ahead of the group’s full year results tomorrow.

This probably explains the 4% plunge in CSR’s share price to $3.38 even as the broader market rallied. This makes CSR the second worst performer on the ASX 200 today after Graincorp Ltd (ASX: GNC), which fell 4.2% to $3.45.

Earnings hit from construction

Citigroup is expecting CSR to post a 40% drop in underlying net profit to $111.1 million, which is 7% below consensus forecasts.

You can blame the downturn in building construction for much of the damage, although the challenging medium-term outlook for its aluminium business isn’t helping either.

“The outlook for CSR remains challenging, with top line headwinds in housing and aluminium businesses emerging,” said the broker.

“This creates a high level of earnings pressure medium term and drives our underlying NPAT downgrades of ~50% in FY21e and FY22e.”

Citi’s 12-month price target on the stock was lowered to $3.45 from $5.60 a share.

Running out of puff

Another to come under pressure today was the REA Group Limited (ASX: REA) share price.

Shares in the online property classifieds group fell 1.8% to $93.46 after Credit Suisse downgraded the stock to “neutral” from “outperform”.

The broker’s decision comes in the wake of the group’s quarterly earnings update that showed a 1% increase in revenue and 7% improvement in earnings before interest, tax, depreciation and amortisation (EBITDA).

The top-line missed Credit Suisse’s forecast of around 5% while EBITDA was roughly in line.

Fully priced

“Given ~7% price increases, this implies the benefit from depth penetration for the quarter was minimal,” said the broker.

“We lower our target price to A$94.50/share (prev A$94.80/share) to reflect the minor reductions to our forecasts.

“We continue to expect a recovery in volumes from the low point expected over the next few months, but given the recent rally in the stock, we view the recovery as appropriately priced in.”

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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