Stocks With Target Price Cuts Jump To Highest In Three Years
Target prices were cut for 49 percent of the 269 stocks tracked by at least 10 analysts in the January-June period.
Analysts have lowered target price for nearly half of the stocks so far in 2019—the most in at least three years—as corporate earnings missed estimates, consumption slowed and commodity prices remained volatile amid trade war tensions.
Target prices were cut for 49 percent of the 269 stocks tracked by at least 10 analysts in the January-June period, according to Bloomberg data. That’s the worst since at least 2016 when analysts downgraded 56 percent stocks during the period.
Selection Criteria
- Filtered 269 stocks out of 5,151 listed companies tracked by at least 10 analysts.
The steepest cuts were in sectors such as automobile, metals and telecom. Aviation, financial services and cement, among others, saw the biggest upgrades.
The Laggards
Of the 132 stocks that witnessed a downgrade, target price for Simplex Infrastructure Ltd. was lowered the most. That’s because of poor operational performance in the last two quarters, higher tax rate and working capital woes.
Estimates for India’s largest telecom operator—Vodafone Idea Ltd.—was cut on the back of the company’s Rs 25,000-crore fundraising from shareholders via a rights issue.
Sterlite Technologies Ltd. witnessed a cut due to higher contribution from the low-margin services segment to its revenue and decline in optical fibre prices globally.
The Gainers
Target prices were upgraded for 137 companies—the most for airlines—due to higher ticket prices, lower fuel cost and stable currency.
Analysts raised the forecast for Manappuram Finance Ltd. because of cost efficiencies or lower cost-to-income ratio, fewer bad loans and robust growth in new businesses.
Pesticides maker UPL Ltd. witnessed a hike as analysts expect higher synergies and income from the acquisition of Arysta LifeScience Inc.
Shift In Analyst Preference
Axis Bank got 11 new ‘Buy’ ratings so far this year after its core profit rose on account of a strong fee income and cost cuts. Lower credit cost, nearing end of asset quality clean-up, favourable change in loan mix and better management control are other factors that turned investors upbeat.
Bullish ratings for Crompton Greaves Consumer Electricals Ltd. came on the back of a recovery in lighting segment margins, lesser impact of consumption slowdown, possible market share gains led by innovation and premium products and higher return ratios.
On the other hand, Yes Bank failed to lift investors’ mood because of its slower loan growth, rising asset quality risk, higher credit costs, increasing dilution risk due to fall in share price and rating downgrades.
Analysts also stayed bearish on automakers as sales are yet to recover from the slowdown that set in since the festival season last year.
(The reasons are compiled from the research reports of UBS, Morgan Stanley, Nomura, ICICI Securities and JM Financial, among others.)