The ASX 200 stocks attracting the biggest broker upgrades: Data#3 and Champion Iron

Shares in cloud computing and IT solutions provider Data#3 (ASX: DTL) have rallied almost 20% since November without any market sensitive announcements. It is perhaps this share price strength that is forcing analysts to nudge their price targets higher.

The Stocks with the Biggest Broker Upgrades

'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between 1 and 8 December 2023.

Data#3 held its 2023 Investor Day on November 16, without marking the announcement as price sensitive. Morgan Stanley analysts left the investor day with "greater conviction that mid-teens EPS is achievable versus low-teens consensus."

The key takeaways from the note include:

• Managed services contracts are margin dilutive in their first year due to the timing of revenue (straight line) and costs (weighted towards year one)

• Managed services margins expand as contracts mature from year 2

• Data#3's onboarding capacity reached full utilisation in 2022, limiting the number of new contracts. This constraint eased in the second half of 2023, leading to increased onboarding and a temporary hit to gross margins

• IT growth is forecast to accelerate from 5.8% in 2023 to 7.8% in 2024, where Data#3 have historically grown at 2-4 times system growth

• Data#3 is well positioned to capitalise on AI opportunities, including early access to Microsoft 365 Copilot and other initiatives

Data#3 daily chart (Source: Market Index)

Iron ore miners including majors BHP, Rio Tinto and Fortescue as well as high-grade producer Champion Iron are attracting share price upgrades as prices for the commodity top US$135 a tonne.

Last week, China's exports in US dollar terms expanded for the first time in seven months including a 4.0% rise in iron ore imports to 102.7 million tonnes.

Singapore iron ore futures (Source: TradingView)