Key points
- The Ansell share price fell again today after sinking 14% yesterday
- Macquarie upgraded the Ansell share price to "neutral" from "underperform"
- But the modest upside to Macquarie's price target didn't seem to excite investors
The Ansell Limited (ASX: ANN) share price struggled for a second successive day on Tuesday, slipping 0.34% lower by the close of trading.
The personal protective equipment maker's shares were in the red for much of the day save for a couple of spikes before closing at $26.67 apiece. For comparison, the S&P/ASX 200 Index (ASX: XJO) finished up 0.49%.
Today's fall follows a 14% crash in the Ansell share price yesterday when the company released a disappointing trading update.
It also comes despite a top broker upgrading the company's shares.
Ansell share price struggles despite upgrade
The big sell-off yesterday prompted Macquarie Group Ltd (ASX: MQG) to lift its recommendation on Ansell. But this doesn't appear to have been enough to motivate bargain hunters to jump in.
This is likely because Macquarie upgraded the Ansell share price to "neutral" from "underperform". The broker doesn't think the shares have fallen far enough to be considered cheap.
Big earnings miss
While Ansell's 1H FY22 revenue was largely in line with Macquarie's expectations, earnings were nearly 20% under forecasts.
"This reflected impacts due to COVID-19 (reduced labour availability), supply chain constraints (delivery delays, higher freight costs), and weaker demand in Exam/Single Use (customer de-stocking)," said Macquarie.
To make matters worse, Ansell is unable to pass on the higher costs – at least not yet. This resulted in the earnings before interest and tax (EBIT) margin falling to 11% in the half, or 6.5 percentage points below 1H FY21.
Gloves come off for Ansell
What is also hurting Ansell is that its facility in Malaysia was forced to shut due to rising COVID cases. Meanwhile, US authorities have banned the import of disposable gloves from YTY Industry Holdings, a major supplier of gloves for Ansell.
"Combined with an expectation of a continuation of operational challenges/supply chain disruption into 2H22 and preliminary 1H22 results, FY22 guidance has been revised to US125-145 cents, with the mid-point ~27% below the mid-point of previous guidance (US175-195 cents) and ~20% below FactSet consensus," added Macquarie.
What is the Ansell share price worth?
But there is a silver lining. The significant drop in the Ansell share price limits the downside risks to the investment.
"While acknowledging earnings uncertainty for 2H22 and into FY23, we see our revised forecasts as capturing downside risk within Exam/Single Use as well as broader COVID-19/supply chain impacts," explained Macquarie.
The broker's 12-month price target on Ansell is $28.30 a share. This implies an upside of 6%, based on today's closing price.
Ansell shares are down around 30% over the past 12 months and 15% this year to date.
