The ASX stocks receiving the biggest broker upgrades and price target increases this week

Welcome back to our weekly check up on the biggest moves from the biggest brokers covering ASX stocks.

We keep hearing about how tough it is in retail, especially anything to do with consumer discretionary spending. But did you know that the ASX Consumer Discretionary sector closed at an all-time high yesterday? That’s right. If share prices are any guide – it’s never been better for Aussie consumer-focussed stocks!

Aussie Consumer Discretionary stocks closed at an all-time high Tuesday

Despite the doom and gloom rhetoric, we saw strong trading updates during the week from fashion retailers Accent Group AX1 and Universal Store Holdings UNI, as well as jeweller Michael Hill International MHJ.

AX1 enjoyed two rating upgrades as well as several price target increases from the brokers, and UNI enjoyed a 31% increase in its target price from Macquarie. Interestingly, MHJ received plenty of positive commentary, but brokers did not see fit to upgrade their ratings on the stock.

Not doing nearly as well as the Consumer Discretionary sector, is the Resources sector. It was a star performer for most of the year as commodity prices were generally rising. But, since June, the prices of many major base metals like nickel and copper, and steel making ingredients like iron ore and coal, have taken a tumble. Aussie resources stocks have followed suit.

Aussie Resources stocks have struggled since mid-May as commodity prices have tumbled

But, with lower prices comes opportunity, and we saw several rating upgrades in the sector to take advantage. Morgans upgraded both Mineral Resources MIN and Rio Tinto RIO to ADD, Citi upgraded both Nickel Industries NIC and South32 S32 to BUY, Jarden upgraded Sandfire Resources SFR to OVERWEIGHT, and Bell Potter upgraded Whitehaven Coal WHC to BUY.

It wasn’t all plain sailing for WHC, though. It’s June quarter production report received mixed reviews. Apart from Bell Potter’s upgrade, Citi downgraded its rating for WHC to NEUTRAL (from BUY), and Macquarie cut its rating to NEUTRAL (from OUTPERFORM).

Also getting mixed reviews, S32 copped three substantial price target cuts of between 14%-18% from Jefferies, Citi, and JP Morgan after its own June quarter update disappointed. S32 warned of increasing cost pressures, lower production forecasts for several key commodities, and noted possible troubles with environmental approvals at its WA-based Worsley Alumina operation.

Finally, ASX high flyer Dronshield DRO has been in the news for all the wrong reasons lately. After enjoying a stellar share price run since the start of the year, its share price came tumbling down during the week after a dubious media article spruiked the short selling intentions of a few minor fund managers.

Things got worse from DRO after the release of its June quarter update, which despite delivering record first half revenues of $24.1 million, missed expectations for closer to $30 million. For its efforts, DRO saw its rating clipped to HOLD from BUY at Bell Potter and at Shaw and Partners. I do note, however, Bell Potter applied a tidy 60% increase in its DRO price target to $1.60 – which still implies an upside of over 12%.

There are plenty of other interesting broker moves for the period – and you can only get this level of detail on what they’re up to from us – so let’s dive in!

How to read broker recommendations 🔎

Typically, there are two major components of a broker’s view:

Rating: A call to action, usually along the lines of buy, hold, or sell, but depending on the broker’s ratings system, can be somewhere in between (e.g., accumulate or add is typically between a hold and a buy).

Price target (PT): The price at which the broker expects the stock will be trading at some point in the future, generally within the next 12 months.

Broker upgrades since Wednesday 24 July

Biggest broker rating upgrades since Wednesday 24 July. Price Target Upside/Downside (“PT Upside%”) values in the last column are based on closing prices on Tuesday 23 July.

From the brokers:

UBS upgrades ALS ALQ to BUY from NEUTRAL

• “Gold/copper prices are trading near record highs (circa +15% YTD) and have incentivised an increase in miner equity raising over the past quarter. We expect the improved raising data, alongside increasing exploration from major miners, to support a recovery in global mineral exploration activity which has been depressed for the past two years.”

• “ALS' EPS growth is also leveraged to global TIC megatrends like increased regulation (i.e. environmental, EPA) and outsourcing. We expect these megatrends will support growth or ALS' leading Environmental testing business.” (TIC = Testing, Inspection and Certification)

• The price target was increased to $17.00 from $14.55

Citi upgrades Bluescope Steel BSL to BUY from NEUTRAL

• “We think US steel prices are now near their lows with a post Northern summer uptick expected and with US monetary conditions set to turn expansionary.”

• “We see further EBIT improvement to $1.73 billion in FY27 as Australian metallic coating capacity lifts and low margin exports are reduced.”

• “We’ve trimmed our TP to $23.70 (from $24) but raise our rating to BUY as we look through near term earnings weakness and likely consensus earnings downgrades.”

• The price target was lowered to $23.70 from $24.00.

Goldman Sachs upgrades Domino’s Pizza DMP to BUY from NEUTRAL

• “DMP announced post market on 17 July 2024 the results of its strategic review with a focus on store network optimisation in its Japan and France markets.”

• “We view this announcement as an incrementally positive step in restoring quality of the store network in the business, without significantly damaging FY25e Group EBIT vs Consensus.”

• “We are seeing that the company is taking more proactive steps to restore a quality franchise network that will enable healthier sustainable growth.”

• The price target was increased to $42.20 from $36.30.

Broker downgrades since Wednesday 24 July

Biggest broker rating downgrades since Wednesday 24 July. Price Target Upside/Downside (“PT Upside%”) values in the last column are based on closing prices on Tuesday 23 July.

From the brokers:

Bell Potter downgrades Droneshield DRO to HOLD from BUY

• “DroneShield released its Appendix 4C and Q2 update, which demonstrated continued growth in its core business but was below our 1H expectations. The company delivered record 1H revenue of $24.1 million, which was +110% on 1H23 but represented a quarter-over-quarter fall and was below our expectations of around $30 million.”

• “We have upgraded our revenue forecasts from CY25 onwards based on near-term defence opportunities in the increased sales pipeline and longer-term civilian applications.”

• “Our long-term view of DroneShield remains unchanged, we view the company as a market leader in the still immature counter-drone market and one who will continue to benefit from substantial tailwinds in the defence sector.”

• “However, at its current valuation DRO will attract increased scrutiny over its short-term performance and future contract announcements, thus we anticipate continued share price volatility. On this basis, we have downgraded our recommendation to HOLD as we await further evidence of pipeline conversion in the 2H or a more attractive entry point.”

• The price target was increased to $1.60 from $1.00

Macquarie downgrades Whitehaven Coal WHC to NEUTRAL from OUTPERFORM

• “WHC's investment in working capital, whilst needed to run a sustainable mine plan, will detract from FCF yields in the short term. Downgrade to Neutral on valuation grounds (less upside to our TP) and potential downside risk from FY25 guidance.”

• The price target was lowered to $8.75 from $9.00

Biggest broker price target changes since Wednesday 24 July

Biggest broker price target changes since Wednesday 24 July. Price Target Upside/Downside (“PT Upside%”) values in the last column are based on closing prices as on Tuesday 23 July.

From the brokers:

Citi increases price target for Zip Co. ZIP to $1.90 from $1.40 (implies 6% upside)

• “The key highlight of Zip’s performance over the past 12 months has been the acceleration in growth in the US while containing bad debts, and that trend continued in 4Q24, which along with the repayment of expensive corporate debt (via the equity raise) results in material earnings upgrades.”

• “US momentum set to continue in FY25e and potential upside to our forecasts if net bad debt performance remains low.”

• “The equity raise also helps Zip clean up its balance sheet and retire expensive corporate debt.”

• Rating is retained at BUY

UBS increases price target for Flight Centre FLT to $27.80 from $21.30 (implies 21% upside)

• “Current trends are looking healthy: UBS airfare tracker suggests Aus. international fares continue to fall (-11% y/y), which should provide ongoing support for volume growth.”

• “We see ongoing support in FY25E: the UBS Evidence Lab consumer survey indicates consumers continue to prioritise travel; FLT's Leisure demographic skew towards >50yrs (>60% of customers) with lower mortgages and higher deposits; and Corporate continues to deliver strong new business wins”

• Rating is maintained at BUY

Citi increases price target on CAR Group CAR to $39.80 from $34.70 (implies 13% upside)

• “While another rate rise and weakening demand are risks to the Australian business, we see Carsales as having a very strong position and expect it to deliver solid growth even in a tough environment.”

• “We expect the International businesses to benefit from rate cuts and, with Brazil and the US driving growth, we expect CAR to deliver double-digit earnings growth over the medium term and upgrade our rating to Buy.”

• “Potential bolt-on M&A could also accelerate growth, especially in the US.”

• Rating is maintained at BUY