Broker tips: Easyjet, NMC Health, Diageo

15th Jun 2015 11:13

Shares in budget airline easyJet fell on Monday after RBC Capital Markets downgraded the stock to 'underperform' from 'outperform' and cut its price target to 1,500p from 2,000p, noting that its positive outlook for summer has proved incorrect.It said that easyJet's outlook metrics suggest a summer lapse, with underlying third-quarter revenue per seat down around 4% and the fourth quarter likely to see flat revenue per seat."As summer is key, we see few positive catalysts until mid-2016, while easyJet faces a winter squeeze," said RBC.RBC cut its 2015-2016 earnings per share estimates by 10-13% and said that the profit growth failure in summer means the emphasis now move to winter's challenges."easyJet faces growing strategic challenges which we think have got tougher in the last two months," said RBC.Ryanair's move to further step up competition and a fall in return on equity were among the challenges cited by RBC. Investec said it expects to hike its target price for NMC Health after the United Arab Emirates healthcare chain snapped up long-term medical care centre ProVita.NMC is paying out $160.6m for ProVita, which focuses on chronic ventilator-dependent patients who require regular medical, nursing and rehabilitative treatments in a non-hospital environment.Investec said the deal is "yet another positive signal of the [NMC's] strategic ambition"."We believe the acquisition fills a gap in NMC's service offering, increases its specialisation and could help it access new target markets. We also think the deal was done at attractive multiples, especially given the likely material (c.13%) accretion to FY16E EPS," the broker said.Investec maintained a 'buy' rating on the stock, saying it would be putting its 900p target price under review. However, the broker foresees lifting the number to "north of c.925p"."Whilst the number of acquisitions has increased the level of integration risk at NMC, we think there remains upside in the shares from here." RBC Capital Markets lifted its forecast for British drinks business Diageo from 'underperform' to 'outperform' and raised the target price to 2,100p from 1,700p.RBC noted last week's rumours that private equity firm 3G Capital was eyeing up the business and said it doesn't matter whether the stories are true. " What does is that it's credible and should prompt management introspection," said RBC.Analyst James Edwardes Jones in a note to clients that the rumours could fuel urgency towards dealing with headwinds such as excessive trade loading, poor pricing and weak cast conversion."With 3G metaphorically looking over its shoulder, we think the probability of a significant increase in planned cost savings and margin is significant," he said.RBC noted any significant change to assumed global GDP growth will impact share price and financial performance.It also said the United States remains important to Diageo and if consumer confidence in that country falls it could jeopardise share price performance.