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The latest ASX 200 shares to be downgraded by leading brokers

The S&P/ASX 200 Index (Index:^AXJO) is clawing back from earlier losses but there are some ASX stocks that are underperforming after getting slugged with a broker downgrade.

The top 200 stock benchmark jumped 0.5% in the last hour of trade after dipping into the red earlier this afternoon.

But not all shares are keeping their head above water.

Potential earnings disappointer

The Iluka Resources Limited (ASX: ILU) share price tumbled 3% to $8.56 at the time of writing after JP Morgan cut its recommendation on the mineral sands miner to “neutral” from “overweight”.

The broker believes there’s a real risk management could disappoint when it hands in its full year profit report card in August.

“With no company update since it withdrew guidance and reduced zircon production settings from 280kt to 170kt, there remains plenty of risk around the outlook for ILU, in our view,” said JP Morgan.

“Our recent call with minerals sands experts, TZMI, confirmed the weakness in pigment, TiO2 feedstock and zircon markets is likely to keep prices under pressure until late CY21.”

The broker’s 12-month price target on Iluka is $8.90 a share.

More work needed

Another stock to be hit with a downgrade is the Healius Ltd (ASX: HLS) share price. Shares in the medical services group fell 0.8% to $3.08 as Morgans downgraded its rating on the stock to “hold” from “add”.

The move stands in contrast with Credit Suisse’s decision to upgrade the stock to “outperform” yesterday following the group’s announcement that it was selling its medical centres for $500 million.

The deal sounds fair to Morgans and the broker noted that the outlook for Healius’ remaining pathology and diagnostic services divisions is getting better.

“While the operating environment is improving, we believe the transition to a specialist diagnostic and day hospital operator is far from complete, with areas of risk including: GP referrals (c25% of revenue for Pathology and Imaging); cost base optimisation; roll off of government funding; and growth initiatives with supportive capex/opex requirements,” said Morgans.

“We believe there is more work to be done before the platform provides significant clinical, operational and financial benefits to support future growth.”

Morgans price target on Healius is $2.96 a share.

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Motley Fool contributor Brendon Lau owns shares of Iluka Resources Ltd. 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.

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