The market may be on a backfoot today but two ASX stocks in particular are underperforming after they got hit by broker downgrades.
The S&P/ASX 200 Index (Index:^AXJO) slipped 0.4% in after lunch trade. The big banks like Westpac Banking Corp (ASX: WBC) and major miners like BHP Group Ltd (ASX: BHP) are contributing to the decline.
No ASX stock insurance against a broker downgrade
But its more than the general market weakness that is dragging on the Insurance Australia Group Ltd (ASX: IAG) share price.
The analysts at Macquarie Group Ltd (ASX: MQG) believe insurers will exceed their first half hazards allowances when they hand in their interim results next month.
Blame La Nina for this. It probably contributed to the 100-year flooding event in Queensland this week.
Legal stoush adds to uncertainty
There’s also the uncertainty about the sector’s legal liability to business interruption insurance.
Many businesses have tried making claims on their policies due to COVID-19. But insurers are resisting due to the pandemic exclusion on policies.
While things are catastrophic for ASX insurers, its bad enough for the broker to downgrade its recommendation on the IAG share price.
Macquarie’s rating went to “neutral” from “outperform”. The 12-month price target on the IAG share price is $5.10 a share.
ASX stock getting trashed on downgrade
Another stock to get a chop is the Cleanaway Waste Management Ltd (ASX: CWY) share price. Shares in the waste management group fell a further 1.3% to $2.35 at the time of writing after Credit Suisse cut its recommendation to “neutral” from “outperform”.
The CWY share price was already under pressure after its controversial and high-profile chief executive Vik Bansal resigned yesterday.
“We find the timing of the announcement surprising given CWY is currently navigating through the pandemic and the CEO’s solid track record of delivering transformation growth and synergies from acquisitions,” said the broker.
Who’s steering the ship?
The issue is there isn’t an obvious successor to Mr Bansal, who’s been credited for turnaround the CWY share price but who’s legacy has been marred by allegations that he created a toxic work culture.
Cleanaway’s chairman Mark Chellew will take on additional duties during the leadership transition. Outgoing chief financial officer Brendan Gill will delay his retirement to become the chief operating officer.
This event highlights the issue of succession risks for ASX stocks. Investors do not like uncertainty, particularly during these trying times.
Credit Suisse’s 12-month price target on the CWY share price is $2.45 a share.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Macquarie Group Limited, and Westpac Banking. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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