Top brokers downgraded several ASX shares on Thursday as market conditions and investor sentiment begin to shift.
Woodside Energy Group Ltd (ASX: WDS), JB Hi-Fi Ltd (ASX: JBH), and Premier Investments Limited (ASX: PMV) are all in the spotlight.
As global commodity prices fluctuate and consumer sentiment softens, these companies are facing fresh challenges.
Let's break down why brokers are downgrading these stocks and what it could mean for investors.
ASX shares downgraded
Citi has given Woodside Energy a sell rating. The broker cut its price target to $24.50 per share, down from $26.83.
A combination of falling oil prices and concerns over the company's dividend spurred the downgrade.
Citi analysts James Byrne and Tom Wallington were cautious about further acquisitions, citing fears Woodside's downgrade cycle was "not done yet", according to The Australian.
Citi believes that macroeconomic factors, including weaker global oil prices, could see further downgrades for Woodside in the coming months.
With the macro quickly moving out of favour for oil prices and guidance on Sangomar likely by February, the levered P&L (profit and loss statement) could see consensus downgrades over the next 6 months…
…We also fear the consensus downgrade cycle is not yet done because our estimates, which are below consensus, look largely in line with the company's 5yr outlook charts.
The company's acquisition spree also drew scrutiny, with Citi highlighting that despite Woodside's growth ambitions, "no credible upstream growth" was currently in the pipeline.
But with no credible upstream growth in the hopper, a single asset in blue ammonia lacking portfolio benefits, and a burgeoning Atlantic Basin LNG portfolio, we don't believe the M&A spree is done.
This could impact the ASX share moving forward.
JB Hi-Fi on hold after solid run
Retail giant JB Hi-Fi has had an impressive run, with its share price reaching new heights in 2024.
However, CLSA has downgraded the stock to hold with a revised price target of $77.75 per share. At the time of writing, this implies a 2% downside potential.
While JB Hi-Fi posted strong FY24 results that beat expectations, with a slight 0.4% dip in sales to $9.59 billion and a 16% drop in net profit, the consumer outlook may be softening.
According to Australian Bureau of Statistics data, retail trade volumes were down 0.3% in the quarter ending June 30 and flat month-on-month in July.
Meanwhile, Australians incurred the "largest fall in disposable incomes" across major economic nations these past two years, as my colleague Seb reported.
The ASX share is now rated a hold by consensus as well.
Premier Investments sliced to hold
CLSA also downgraded Premier Investments to hold today, with a price target of $33.40 per share.
While Premier Investments operates key retail brands like Smiggle and Peter Alexander, the broker's downgrade comes after a mixed trading update from Myer Holdings Ltd (ASX: MYR), which could have broader implications for the retail sector.
CLSA's revised price target implies roughly 4.6% downside potential from the current share price of $34.95.
Despite the downgrade, not all brokers agree.
Analysts at Bell Potter saw the recent pullback in Premier Investments as a buying opportunity. The broker reaffirmed its buy rating with a $35 price target.
Note this doesn't factor in any additional return from dividend income.
Bell Potter believes the stock could climb even higher if Premier demerges its key brands, Smiggle and Peter Alexander.
According to CommSec, it is also rated a buy from consensus, meaning CLSA's downgrade is a contrarian one.
ASX shares takeout
While downgrades from top brokers can be a concern, they don't always spell disaster. Some of these changes are also contrarian ones.
Time will tell what the longer-term outcome will be.
