Broker watch: Ditch Xero, Goodman growth intact, Eagers earnings pushed back not foregone

Market Index takes a look at any noteworthy ASX 200 broker updates from the past week.

Time to sell Xero? 

UBS retains the only Sell-rated recommendation among the six brokers tracked by FNArena.

Funnily enough, UBS was the only investment bank to hold a Sell rating for Afterpay and Zip (ASX: Z1P) for most of their extraordinary rallies last year, while everybody else kept moving up their price targets. Look who got the last laugh. 

UBS said that there were a few positive takeaways from Xero’s (ASX: XRO) full-year results last Thursday, notably a beat in revenue growth.

The main reason for the Sell rating was the lack of cash flows, which blurs the otherwise favourable outlook for the software company.

UBS retained a sell rating with a $70.00 target price. 

Xero 12-month price chart

Goodman growth narrative intact

Goodman Group (ASX: GMG) upgraded its FY22 EPS growth outlook to 23% following a solid third quarter update on Monday.

Brokers were mostly Buy rated following the update, with a consensus target price of $26.77. Several brokers were pleased with the growth in Goodman's work-in-progress pipeline, which increased from $12.7bn last December to $13.4bn.

The pipeline is said to sustain at least two years of production and reverses the view that warehouse demand is slowing down.

Goodman 12-month price chart

Pity Buy for James Hardie

James Hardie (ASX: JHX) sold off -3.4% after the release of its fourth quarter earnings on Tuesday, unable to inspire any buying even after a -33% year-to-date selloff.

Brokers released a stream of positive notes post-earnings, most of which were Buy rated with a consensus price target of $50.72.

Broker commentary seems to be quite detached from a Buy rating, with concerns about inflation, rising corporate costs and higher interest rates.

The Buy rating was more so from a valuation perspective, with the view housing market weakness and cost challenges are mostly already priced in.

James Hardie 12-month price chart

Eagers Automotive: Delays not an issue

Eagers Automotive (ASX: APE) briefly dipped -9.4% on Wednesday after downgrading its earnings expectations for the second-half of FY22 due to delays in new vehicle deliveries.

Underlying operating profit after tax is forecast to be $183m to $189m in the second-half, down -12% to -14.8% compared to last year.

Brokers mostly looked past the near-term delays, reiterating mostly Buy ratings with outsized $16.35 consensus target price.

The general view was that vehicle delays was simply pushing back earnings and not foregone earnings. The business remains intact, with demand for new vehicles continuing to outstrip supply.

Eagers 12-month price chart

Strength-to-strength for Aristocrat pokies

Aristocrat Leisure (ASX: ALL) shares are up 11.9% since the release of its half-year results on Thursday.

The results were loaded with positives including:

• On-market share buyback of up to $500m

• Revenue of $2.75bn, up 23%

• Net profit of $580m, up 41%

• Interim dividend of 26 cents per share, up 73%

Six out of six brokers were Buy rated after running the ruler on the half-year results, with a consensus target of $43.13.

Aristocrat 12-month price chart