The market bounced from the Friday sell-off but this didn’t stop top brokers from downgrading a number of ASX shares today.
The S&P/ASX 200 Index (Index:^AXJO) jumped 1.5% in after lunch trade to 6,765 points with all sectors bar materials trading in the black.
Even the Orica Ltd (ASX: ORI) share price is recovering from its disappointing market update and the retirement of its chief executive.
Earnings getting blown down
The news was enough to prompt Macquarie Group Ltd (ASX: MQG) to downgrade the explosives and chemical maker to “neutral” from “outperform”.
The broker lowered its rating on the Orica share price after management warned that its first half earnings before interest and tax (EBIT) would take a $105 million to $125 million hit.
Impact from COVID-19 played a large part but the weak Chinese thermal coal market and unfavourable exchange rates also weighed.
Uncertainty prompts broker downgrade
“We lower our recommendation to Neutral, given the lack of earnings visibility, CEO transition and tightened balance sheet metrics,” said Macquarie.
“Investors are likely to focus on post-COVID earnings in FY22 and FY23; however, ORI needs to get through FY21 first.”
The broker’s 12-month price target on the Orica share price is $13.65 a share.
When good isn’t good enough
Another stock to be hit by a broker downgrade is the Harvey Norman Holdings Limited (ASX: HVN) share price.
Goldman Sachs lowered its recommendation on the Harvey Norman share price to “neutral” from “buy” even after the electronics and furniture retailer posted a solid profit result.
Harvey Norman has been a COVID winner with stuck-at-home consumers buying stuff for their homes.
Earnings upgraded but recommendation downgraded
The big rebound in the residential housing market is another boon for the Harvey Norman share price. New homes require new furniture.
Goldman lifted its net profit forecast for the group by 12.2% in FY21 due to pandemic spending and 17% in FY22 due to the housing boom.
“While the housing cycle is likely to provide some buffer to the earnings outlook over FY22 and FY23, the peak trading seen in the June quarter 2020 to March quarter 2021 are unlikely to be sustained, in our view,” said Goldman.
“Despite the upgrade, we forecast FY22 EBIT to decline 30% on FY21.”
The broker’s 12-month price target on the Harvey Norman share price is $5.10 a share.
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Motley Fool contributor Brendon Lau owns shares of Macquarie Group Limited. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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