It’s perhaps a sign that the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is looking overstretched. Brokers have been downgrading more than upgrading their recommendations on large cap ASX shares in recent times.
There are three top 200 shares that suffered a cut today and all three are significantly underperforming the broader market ahead of the close.
No sunshine but rain
One that’s on the inauspicious list is the Suncorp Group Ltd (ASX: SUN) share price. The banking and insurance group tumbled 1.3% to $13.29 when the ASX 200 held around breakeven after Credit Suisse downgraded the stock to “underperform” from “neutral”.
“With a new CEO announced and earning headwinds continuing, we expect SUN to review its Group targets in coming months,” said the broker.
“The current targets are unlikely to be achieved in coming years, in our view, unless SUN unwinds the work of previous years and takes on more risk again.”
The risks aren’t priced into the stock and the broker lowered its price target to $12.75 from $13.90 a share.
Hitting fair value
Meanwhile, the Santos Ltd (ASX: STO) share price is giving up a chunk of the big gains it made yesterday. The gas producer fell 2.2% to $7.68 at the time of writing and that probably has something to do with JP Morgan downgrading the stock to “neutral” from “overweight”.
The move comes after Santos emerged as the buyer of ConocoPhillips’ northern Australian assets.
“The transaction is positive insofar as it gives Santos a majority share in all key Northern Australia upstream and infrastructure assets – which should enable further Joint Venture partner alignment through sell-downs to third parties,” said the broker.
“The acquisition will also be both EPS and EBITDAX accretive in CY2020. Nonetheless, we believe that the price paid for the increased stake looks fair, albeit without synergies, and downgrade to Neutral on valuation.”
The broker’s target price on the stock is $7.75 a share.
Testing times ahead
Another stock that has fallen out of favour with Credit Suisse is the ALS Ltd (ASX: ALQ) share price, which declined by 2.9% to $8.09.
The broker isn’t confident that the laboratory testing services group will post a pleasing news result on November 19.
“The focus at the result is likely to be on the outlook for volume growth in the Commodity segment (Geochem) and continued margin improvement in Life Sciences,” said Credit Suisse.
“While our proprietary leading indicator continues to point to a recovery in 2H FY20, other indicators (Junior financings and drilling activity) continue to be soft.
“We estimate ALS share are already priced for moderate sample volume growth in 2HFY20 and given ALS’ history of share price volatility on results announcements (mostly negative recently), we lower the rating to NEUTRAL (from Outperform).”
The broker’s price target on ALS is $8.40 a share.
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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 Scott Phillips.