The ASX 200 stocks attracting the biggest broker upgrades: Collins Food and Iress

A few weeks ago, major poultry supplier Inghams (ASX: ING) provided an upbeat first-half FY24 guidance which was well above analyst expectations. The stock rallied almost 20% between October 30 and November 7.

Perhaps this was a read-through for Collins Food (ASX: CKF), which sources its chicken from various suppliers, including Inghams. Shares in the KFC operator rallied 9% last Tuesday after reporting a strong set of first-half FY24 results, including:

• Revenue up 14% to $696.5 million

• KFC Australia same-store sales growth of 2.9% for the first six weeks of the second half of FY24

• Underlying EBITDA up 17% to $109.9 million

• Statutory net profit of $50.5 million, up from $11.1 million a year ago

• Underlying net profit up 29% to $31.2 million

The impressive earnings beat triggered a surge of broker upgrades, taking the top spot for the stock with the largest week-on-week increase in consensus target price.

The Biggest Broker Upgrades

'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between 24 November and 1 December 2023.

Collins Food: Strong Beat vs. Slowing Sales

Citi said the first-half FY24 net profit figure of $31.2 million was 37% ahead of consensus expectations, driven by Europe and slightly better-than-expected margins.

"We expect the better-than-expected profit result combined with a turnaround in Taco Bell to be well received by investors. Potential Europe acquisitions appears to be a positive catalyst," the analysts said.

"Collins appears to be continuing to manage its business well in a challenging consumer and inflationary environment, however, the deterioration in SSS momentum in Australia needs to be monitored."

Citi was Neutral rated with a $11.10 target price as at 27 November 2023.

Iress: Guidance Upgrade

Iress shares rallied 14.9% last Thursday after announcing an FY24 earnings upgrade and strategy update, which included:

• Full-year adjusted EBITDA to be between $123-128 million vs. prior guidance of $118-122 million

• Second half revenue growth of 2.6% half-on-half, slightly ahead of expectations

• Second half cost base to be more favourable than the first due to lower staff costs

• Net debt reduced from $375 million as at 30 June 2023 to $308 million at 31 October 2023

• Transformation program continues at pace, with a focus on customer value, innovation and further cost efficiencies

Going into the update, IRESS shares were down around 45% in the past six months.

Brokers were broadly positive coming out of the update, with confidence that the turnaround strategy was progressing well. Asset sales are a key watch for analysts as the sale of the UK businesses could offset most of the outstanding debt. Most analysts noted that the current valuation is undemanding given IRESS' strong market position in Australia.