Why these 4 ASX 200 shares just got downgraded by top brokers

Leading brokers have downgraded their outlooks for these ASX 200 shares. But why?

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Four S&P/ASX 200 Index (ASX: XJO) shares just had their medium-term outlook slashed by leading brokers.

All four are household names.

And they each operate in different sectors.

Here's why these ASX 200 shares may not perform quite as well over the coming 12 months as these brokers had previously been expecting.

(Broker data courtesy of The Australian.)

Four ASX 200 shares hit with downgrades

The first ASX 200 share getting hit with a downgrade is building materials company James Hardie Industries (ASX: JHX).

The James Hardie share price is up 22% over 12 months but down 20% in 2024. Shares are up 1.4% today at $47.84.

The company reported its full-year results on Tuesday. The past year's results looked solid, with net sales up 4% year on year to US$3.94 billion. But the outlook for the year ahead looks to have led to the broker downgrades.

Earnings guidance for FY 2025 fell short of consensus expectations. And management noted that the outlook for its housing markets "continues to remain uncertain".

With those results in mind, JP Morgan cut its rating for James Hardie shares to 'neutral' with a $50 price target, which is some 4% above current levels.

Macquarie also reduced its price target by 12% to $55. But the broker raised the ASX 200 share to an 'outperform' rating.

According to Macquarie (quoted by The Australian):

The group has made strong progress on cost and working capital reduction and improving the efficiency in procurement and R&D spend. These factors set the group up well for an eventual broad-based recovery.

Which brings us to the second ASX 200 share getting hit with a broker downgrade, Sonic Healthcare Ltd (ASX: SHL).

The Sonic Healthcare share price is down 28% over the past 12 months. Shares are up 3.5% today, however, at $25.40.

The medical diagnostic company released a disappointing earnings update on Tuesday, which saw management cut full year revenue and earnings guidance. The company flagged headwinds including inflation, adverse currency exchange rates, and delayed margin improvement initiatives.

On the back of this update, Citi cut its target price on Sonic Healthcare shares by 19% to $25.

Moving on, the third ASX 200 share getting a downgraded broker outlook is Telstra Group Ltd (ASX: TLS).

The Telstra share price is down 21% over the past 12 months. Shares are up 0.6% today at $3.44 apiece.

Australia's biggest telco announced some significant organisational restructuring on Tuesday.

Among the bombshells, the ASX 200 share said that ongoing inflationary cost pressures will see 2,800 employees cut from its workforce.

And in a move that looks to have spurred the broker downgrade, Telstra said it was axing its annual inflation-linked postpaid mobile plan price reviews.

On the back of the update, Macquarie cut Telstra to a 'neutral' rating with a $3.70 price target.

The broker cited the removal of the inflation-linked price hikes as a "key negative" for the stock.

According to Macquarie analyst Darren Leung:

While Telstra indicated this provides them with greater flexibility to respond to market conditions, we view it as a negative for the industry when the market leader is no longer leading the upward price trajectory.

Put another way, pricing decisions are now increasingly dependent on Telstra's peers, who have had a mixed track record.

Which brings us to the fourth ASX 200 share getting a broker downgrade, Westpac Banking Corp (ASX: WBC).

Westpac hasn't released any price-sensitive reports since its half-year results on 6 May.

The Westpac share price is up 26% over the past 12 months. Shares are down 1.1% today at $26.78.

Despite today's dip, Goldman Sachs believes that, like its peers, the big four bank's valuations are still stretched. The broker cut Westpac shares to a 'sell' rating with a $24.10 price target.

Goldman Sachs analyst Andrew Lyons noted:

With earnings risks more balanced, valuations skewed heavily to the downside, and our analysis suggesting previous sector de-ratings not being catalysed by absolute or relative earnings downgrades, we take a more negative view on the banks.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group, JPMorgan Chase, and Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group and Telstra Group. The Motley Fool Australia has recommended Sonic Healthcare. 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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