On Monday I looked at three shares that are in favour with brokers this week and have been given buy ratings.
Unfortunately brokers aren’t bullish on all shares. Three which they are bearish on are listed below. Here’s why they have slapped sell ratings on them:
Domino’s Pizza Enterprises Ltd (ASX: DMP)
According to a note out of Deutsche Bank, its analysts have retained their sell rating and lowly $36.00 price target on this pizza chain operator’s shares following its investor day last week. Deutsche believes that franchisee profitability is a big problem for Domino’s and fears that it could impact its margins and store rollout plans. In addition to this, recent signs of food inflation are expected to be a challenge over the short to medium term. While I do think that Deutsche makes some great points, I remain confident that Domino’s can overcome these issues and deliver on its long-term expansion plans.
Silver Chef Limited (ASX: SIV)
A note out of Morgans reveals that its analysts have downgraded this equipment leasing company’s shares to a reduce rating and slashed the price target on them to just $1.62. The broker made the move after Silver Chef advised that its debt covenants have been waived until the end of March. The waiver was granted under the condition that the company raised a minimum of $45 million in additional capital in order to ensure that its net rental asset ratio is no greater than 65% by the end of February. Morgans fears that there are risks to its earnings and share price in the near term and I completely agree. I would stay well clear of Silver Chef for the time being.
Virgin Australia Holdings Ltd (ASX: VAH)
Analysts at UBS have retained their sell rating and 19 cents price target on this airline’s shares despite yesterday’s positive trading update. That update revealed that revenue for the first quarter grew 9.7% on the prior corresponding quarter and the trend is expected to continue in the current quarter. However, according to the note, the broker believes that rising fuel prices and underlying costs are going to reduce profitability over the next few years, making Virgin Australia a sell at the current price. I’m not as bearish as UBS, but would only class it as a hold at best.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Domino's Pizza Enterprises 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.