Brokers have upgraded 3 ASX shares to the buy zone. Here’s why

With reporting season in full swing, Australia’s leading broker houses are exceptionally busy. Many have updated their analysis coverage on blue-chip ASX companies ahead of full-year FY20 results.

Three brokers are bullish on these 3 ASX shares in particular. Here’s why.

Appen Ltd (ASX: APX)

UBS has placed a price target of $41 and a ‘buy’ rating on the tech darling, suggesting a 10% upside on the current price of $36.22 at the time of writing. Its previous target was as low as $32 for the company.

The broker is optimistic about the outlook of the AI industry generally. It sees Appen’s recent hiring activity as a positive indication of progress in its North American business development.

It was also buoyed by the news from Appen’s previous earnings guidance that it was stepping up investment in its supply chains. UBS sees the company’s continuation of this aggressive investment strategy throughout COVID-19 as a strong sign of high confidence.

The UBS broker forecasts earnings per share of 66.5 cents for FY20, and a further upscale of 92.5 cents in FY21 alongside an increased dividend.

Appen will report full-year performance on 27 August, but having reached a record high share price of $38.47 last month, I expect this ASX share to continue to outperform.

Downer EDI Limited (ASX: DOW) 

Having reported a statutory net loss after tax of $150 million in FY20 as part of yesterday’s full-year results, Credit Suisse still believes the jack of all trades contractor will outperform moving forward.

According to the broker, Downer’s FY20 results didn’t contain any surprises in terms of operating income and net profit. And Credit Suisse is impressed by the company’s urban services operations and exposure to government contract work for FY21.

A target price of $4.70 was placed on the ASX share, with an FY21 dividend yield of approximately 4.5% and earnings per share of 30 cents expected over the next 12 months.

Downer’s shares are trading at $4.30 at the time of writing, suggesting a 10% upside based upon the broker’s forecast.

Coles Group (ASX: COL)

Citi has placed a target price for the supermarket giant of $21.40, representing a 13% increase from its current share price of just a nudge under $19.

The broker sees Coles as a ‘buy’, spurred by buoyant trading conditions for the grocery business that it believes will continue for at least the next 6 months.

In addition to the high likelihood of elevated sales growth, Citi asserts that the earnings and dividend stability of Coles is a major tailwind for the company.

Coles will announce results for the full FY20 year on 18 August, but the broker expects an FY21 dividend yield of 3.2% and a 5% growth of earnings per share over the 12 months to 72 cents.

More reading

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• 2 safe and strong ASX dividend shares to buy during the COVID-19 crisis
• Is BetaShares Australia 200 ETF the best ASX ETF?
• Whatever happened to WAAAX shares?
• 3 stellar ASX tech shares to buy for the long term

Motley Fool contributor Toby Thomas owns shares of Appen Ltd and Downer EDI Ltd. The Motley Fool Australia owns shares of Appen Ltd and COLESGROUP DEF SET. 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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