Broker tips: Vodafone, Glaxo, Next

14th Jul 2009 12:23

Vodafone is losing share in three of its four main European markets according to UBS, which has downgraded its rating of the mobile phone giant.The Swiss bank believes the stock is a short-term sell and has switched its medium-term recommendation to "neutral" from "buy" while cutting its price target from 150p to 115p."Economic pressures, market share loss and foreign exchange have combined to put pressure on our earnings estimates for Vodafone. Excluding last year's tax gain, we expect earnings to decline 11% this year. We think the upcoming KPIs [key performance indicators] are likely to show deterioration across the board, with the European businesses seeing a revenue decline of 5.5%," UBS said.US bank Morgan Stanley remains "overweight" in Vodafone shares but has trimmed its price target from 175p to 170p ahead of the company's first quarter interim statement on 24 July."In our view the key question will be whether the trend for worsening year-on-year revenue trends in Europe will be continued into the second quarter. We believe that there is a reasonable chance that the first quarter forms the low point of the current decline, or at least that the second quarter records a figure comparable to the first, with less negative quarters ahead," Morgan Stanley said.Panmure Gordon has reiterated its recommendation to buy shares in pharmaceuticals giant GlaxoSmithKline after the World Health Organisation described the spread of the H1N1 flu virus as unstoppable."GSK [GlaxoSmithKline] should benefit from the situation medium term, and it is worth noting that GSK received an order from the US government totalling US$71m for its adjuvant technology, which should provide upside to forecasts beyond any specific H1N1 vaccine the company manufactures," Panmure analyst Tom Kemp said. "In addition to H1N1 vaccine manufacture (which could be as much as £1.2bn in 2010E), this could result in EPS upgrades," Kemp added.The broker said the stock is trading on a projected price/earnings ratio of 10.4 based on projected 2010 earnings, a 1% discount to the European sector. Panmure continues to prefer AstraZeneca but rates Glaxo a buy, not least because of the 6% dividend yield. Singer Capital Markets has lifted its target price for Next ahead of the fashion retailer's second quarter update, expected on 29 July.The broker has edged up its target price for Next from 1725p to 1800p and upgraded its recommendation to "buy" from "fair value", after upgrading current year earnings forecasts by 3.3% and next year's by 3.3%.Singer is expecting "another decent quarter" for Next, despite management guidance that the second quarter would prove tougher than the first, if only because of going up against tougher comparatives. Singer expects improved performance to be driven by upgrades to the product range and continued seasonal selling conditions."After a prolonged period of LFL [like-for-like] sales declines at Next, which has lasted 4 years thus far, any sort of evidence suggesting that sales trends are beginning to stabilise, particularly at this point of the cycle, would be well received by the market and should provide support for a re-rating," the broker believes.