The Australian economy is emerging from the dreaded COVID-19 lockdown and the optimism is firing up the share market!
The S&P/ASX 200 Index (Index:^AXJO) jumped 1.3% on Monday with all sectors finishing in the black, although the runup in share prices is forcing some brokers to downgrade some ASX shares.
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Bad news around the corner
One of the latest stocks to be hit with a recommendation downgrade is building supplies group CSR Limited (ASX: CSR).
Citigroup cut its rating on the stock to "neutral" from "buy" ahead of the group's full year results tomorrow.
This probably explains the 4% plunge in CSR's share price to $3.38 even as the broader market rallied. This makes CSR the second worst performer on the ASX 200 today after Graincorp Ltd (ASX: GNC), which fell 4.2% to $3.45.
Earnings hit from construction
Citigroup is expecting CSR to post a 40% drop in underlying net profit to $111.1 million, which is 7% below consensus forecasts.
You can blame the downturn in building construction for much of the damage, although the challenging medium-term outlook for its aluminium business isn't helping either.
"The outlook for CSR remains challenging, with top line headwinds in housing and aluminium businesses emerging," said the broker.
"This creates a high level of earnings pressure medium term and drives our underlying NPAT downgrades of ~50% in FY21e and FY22e."
Citi's 12-month price target on the stock was lowered to $3.45 from $5.60 a share.
Running out of puff
Another to come under pressure today was the REA Group Limited (ASX: REA) share price.
Shares in the online property classifieds group fell 1.8% to $93.46 after Credit Suisse downgraded the stock to "neutral" from "outperform".
The broker's decision comes in the wake of the group's quarterly earnings update that showed a 1% increase in revenue and 7% improvement in earnings before interest, tax, depreciation and amortisation (EBITDA).
The top-line missed Credit Suisse's forecast of around 5% while EBITDA was roughly in line.
Fully priced
"Given ~7% price increases, this implies the benefit from depth penetration for the quarter was minimal," said the broker.
"We lower our target price to A$94.50/share (prev A$94.80/share) to reflect the minor reductions to our forecasts.
"We continue to expect a recovery in volumes from the low point expected over the next few months, but given the recent rally in the stock, we view the recovery as appropriately priced in."
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