The market is holding up better than many feared during the reporting season, and these are the latest ASX stocks to be upgraded by brokers to “buy”.
The number of pleasing earnings results so far have exceeded my expectations and leading brokers have just upgraded the following ASX stocks.
Upgrade on big earnings beat
One of these is the Monadelphous Group Limited (ASX: MND) share price. Macquarie Group Ltd (ASX: MQG) lifted its recommendation on the engineering contractor to “outperform” from “neutral” in the wake of its better-than-expected results.
Management posted a FY20 net profit of $36.5 million yesterday. While that represents a decline of nearly 28% over the previous financial year, the result was a whopping 34% ahead of Macquarie’s expectation.
The big beat was driven largely be expanding profit margins and the company’s dividend and cash flow also beat the broker’s forecasts.
MND share price doesn’t reflect rising iron ore prices
“Iron ore is now 32% of revenue and we see a healthy pipeline of work particularly in relation to stay in business capex to maintain high iron ore production rates,” said the broker.
“[Monadelphous] share price has substantially decoupled from iron ore price.”
While Monadelphous’ legal stoush with Rio Tinto Limited (ASX: RIO) remains a big overhang on the stock, the broker isn’t too fussed. It believes both parties will eventually reach a settlement that will avoid the worst-case scenario for Monadelphous.
Macquarie believes Monadelphous will generate a 46% growth in earnings per share in FY21 and its price target is $11.57 a share.
Superpit triggers upgrade
Another stock that’s found favour is the Saracen Mineral Holdings Limited (ASX: SAR) share price. The gold miner was upgraded to “buy” from “neutral” by UBS after Saracen unveiled its Superpit mine plan.
The Superpit project, which is jointly owned by Saracen and Northern Star Resources Ltd (ASX: NST), may not sound so super to some. This is because the miners won’t get to the high-grade Golden Pike ore until later in the mine plan.
Short-term pain for long-term gain
“In aggregate this means lower near-term production and a slightly lower peak production of ~700kozpa from ~FY28e,” said the broker.
But this isn’t putting off UBS. The broker sees value in the stock given its trading below its price target of $6.75 a share.
There’s also room for Saracen to surprise on the upside as the miner drills two exploration holes at the project. Depending on the outcome, the miner could upgrade its production forecasts in FY25 to FY27 and extend the life mine.
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Brendon Lau owns shares of Macquarie Group Limited and Rio Tinto Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. 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.
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