Many of Australia’s leading brokers have been busy again making changes to financial models and forecasts, leading to the release of countless broker notes.
Three shares that have been named as sells by brokers are listed below. Here’s why they are out of favour:
Greencross Limited (ASX: GXL)
According to a note out of Deutsche Bank, its analysts have retained their sell rating and $3.70 price target on this integrated pet care company’s shares. Deutsche appears concerned that Greencross’ strategic investment in its in-store veterinary clinic roll out isn’t generating sufficient returns. In addition to this, the broker has pointed at its high levels of debt as a reason to tread carefully. I would have to agree with Deutsche on Greencross. I was optimistic that the in-store clinic rollout was going to be a game-changer for the company, but it hasn’t turned out that way thus far. I would suggest investors stay clear of the company until its performance improves.
Insurance Australia Group Ltd (ASX: IAG)
Analysts at Macquarie have retained their underperform rating and $6.50 price target on this insurance giant’s shares after it announced the sale of three of its Asian businesses for $525 million. While the sale is seen as a positive by Macquarie as the businesses made losses in FY 2017 and the proceeds are likely to support a sizeable share buyback, it isn’t enough for the broker to change its rating. I would agree with Macquarie as well. At 20x estimated full-year earnings I think Insurance Australia Group’s shares are a little on the expensive side.
Metcash Limited (ASX: MTS)
A note out of Credit Suisse reveals that its analysts have retained their underperform rating but cut the price target on the wholesale distributor’s shares to $2.65. According to the note, the broker is concerned that tough trading conditions and market share losses for independent supermarkets could weigh heavily on Metcash’s performance. In addition to this, the broker suspects that Metcash may require an injection of capital in the near term to support its future growth strategies. Once again, I would agree with the broker on this recommendation. I struggle to see how Metcash is going to generate sufficient growth over the next few years to support its share price. Especially after the potential loss of the IGA South Australia supply contract.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Greencross Limited. The Motley Fool Australia owns shares of Insurance Australia 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.