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Brokers upgrade outlooks for Medibank Private Ltd and Aristocrat Leisure Limited 

Credit: Francisco Osorio

Market sentiment can play a huge role in the performance of a particular share at times. It can carry a share to new heights or it can drag it to new lows.

Two shares which have recently experienced a shift in sentiment are Medibank Private Ltd (ASX: MPL) and Aristocrat Leisure Limited (ASX: ALL), which on Friday 29 January were both upgraded to a consensus buy according to the brokerage arm of Commonwealth Bank of Australia (ASX: CBA), CommSec.

Medibank Private Ltd

Medibank is going through a good run of upgrades. Earlier this month both Macquarie Securities and Bell Potter upgraded their price targets to $2.72 and $2.97, respectively. This means potential upside of 8.3% to 18.3% from Friday’s close price of $2.51.

The enthusiasm appears to stem from when the company recently announced that due to improved hospital contracting, improved claim outcomes, and a slowdown in hospital utilisation growth, there would be a profit upgrade for the first half of 2016.

Although revenue is expected to grow slightly slower than expected, management believes that through operational improvements it will report operating profit of $470 million. This is well beyond the prior guidance given by management of $370 million. This is a vast improvement by the company and could be the catalyst to some great share price gains.

Aristocrat Leisure Limited

I have spoken recently about Aristocrat Leisure, so was pleased to see the shares get upgraded. The weak Australian dollar has been, and will continue to be, a huge tailwind for the company due to its large exposure to the United States market.

Many market commentators are expecting there to be at least two rate rises in the US this year which should cause the Australian dollar to decline further. In the most recent economic weekly report by Westpac Banking Corp (ASX: WBC), the bank has forecast the Australian dollar to trade at 66 U.S. cents by June. The company’s top and bottom lines will undoubtedly see a big boost should this occur.

Currently the shares trade at a PEG ratio of 0.98 and, although it has a reasonably high debt to equity ratio, the company exhibits strong levels of liquidity and free cash flow generation. I believe the company is well positioned to grow its earnings and provide share price gains for shareholders.

Foolish takeaway

Medibank Private and Aristocrat Leisure are two blue-chip shares which the market is looking favourably on at present. A further positive I believe is that the excellent long-term prospects that both companies exhibit should help provide shareholders with long-term gains long after this recommendation upgrade wears off.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. 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 Bruce Jackson.

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