The ASX 200 stocks attracting the biggest broker upgrades: Pinnacle, Pro Medicus

Pinnacle Investment Management (ASX: PNI) reported larger-than-expected fund inflows for the first-half of FY24, signalling a potential turning point for the funds management industry.

Pinnacle reported an increase in funds under management of $8.2 billion or 9% during the first-half. To add some perspective, Macquarie analysts forecasted inflows of just $0.7 billion – Making the result a 540% beat against expectations. The stock opened 2.6% higher and rallied through the session to an 8.6% gain at the close.

The company's earnings call also contained a number of nuggets including:

• Strong inflows towards the end of 1H24, particularly in AGR and alternatives, have positioned the company well for the second half

• International inflows were dominated by key funds from the US and UK, with $3 billion coming into these areas

• A$3.1 billion of net inflow excludes a further $826 million of committed capital yet to earn fees from the second quarter onwards

• Retail inflows amounted to A$1.8 billion in the first half, stronger in the second quarter compared to the first, indicating building momentum despite challenging conditions

Biggest ASX 200 Upgrades

'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between Friday, 9 February and Friday, 2 February 2024.

James Hardie (ASX: JHX) shares are up almost 90% in the past twelve months, which implies a couple of things:

• There's a lot baked into the share price

• Earnings expectations are very high

• The stock (and sector) is in the midst of an earnings upgrade cycle

• Earnings momentum must continue

"We expect a strong Q3 result. More importantly, we think that seasonal strength, coupled with supportive US housing markets could see Q4 guide above consensus," Morgan Stanley analysts said in a note dated January 30.

"We see further upside from here, reiterate Overweight. We continue to view James Hardie as the highest-quality name in our Building Materials coverage universe. We believe that the strongly differentiated market position, proven ability to drive structural share growth, best-in-class margins and cyclical upside and provide a unique offering."

Interestingly, we've seen this soaring share price and high expectations dynamic play out with Boral (ASX: BLD). Last Friday, the company reported:

• Revenue of $1.84 billion, up 9.4% year-on-year and largely in-line with analyst expectations

• Underlying net profit after tax of $138.6 million, up 143.9% and beat consensus expectations of $108.1 million (28% beat)

• Upgraded full-year EBIT guidance to $330-350 million, up from its November 2023 guidance of $300-330 million but below Morgan Stanley expectations of $343.2 million (0.9% miss at midpoint)

Boral shares opened the session 7.2% higher and closed up 8.3% (down from session high of 12.75%).

Overall – Boral rallied on the day of its results after 1H24 profits came out well-above consensus expectations. However, its upgraded full-year guidance fell short of Morgan Stanley expectations. A lot has been baked in and its share price is struggling to grind higher.