Right now, household goods giant Unilever (LSE: ULVR) (NYSE: UL.US), online supermarket Ocado (LSE: OCDO) and graphics chip-designer Imagination Technologies (LSE: IMG) are not winning friends among City analysts.
Imagination Technologies saw several broker downgrades through 2014. More analysts are now negative on the company than positive (if we exclude house broker JP Morgan Cazenove).
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The latest City downgrade came following Imagination’s half-year results on 16 December. Despite the company beating analyst consensus expectations, and guiding on a juicy long-term operating margin of 30%-40%, Numis downgraded the stock from ‘reduce’ to ‘sell’.
Analyst Nick James said: “The lead indicator of licensing revenue remains at levels well below where we would expect given the massive investment in opex over the past five years”. Furthermore, he suggested that management’s operating margin target “lacks credibility”.
At a current share price of 236p, Imagination trades on a consensus 31 times forecast 12-month earnings. James said: “risk feels heavily weighted to the downside”.
Ocado is on an even higher rating than Imagination: an eye-watering 91 times 12-month forecast earnings, at a current share price of 402p. The weight of analyst sentiment is negative (excluding the house brokers), and Ocado is also one of the most heavily shorted stocks on the London market.
Bear analysts suggest Ocado (which is due to release a Christmas trading statement on Wednesday) will not be immune to a deteriorating pricing environment in 2015, as the ongoing supermarket price war continues to drive prices down. The bears are also concerned by a specific potential blow facing the company.
Ocado shifts a lot of goods for Waitrose, but the latter has the ability to serve notice on the relationship this September. Shore Capital analyst Clive Black notes that “Waitrose could see a growing commercial benefit from self-controlling the distribution of its product and debilitating a competitor”. He reckons such a move by Waitrose would be “more than a body blow” to Ocado. Analysts at Jefferies believe there is “a high probability that Waitrose will elect to rescind the contract”.
Unilever has begun 2015 with almost twice as many analysts rating the stock a ‘sell’ as a ‘buy’. A big reversal from this time a year ago when there were three ‘buys’ for every one ‘sell’ — a ratio that’s currently being enjoyed by Unilever’s FTSE 100 rival Reckitt Benckiser.
Firm’s in the broader consumer goods sector — such as British American Tobacco and drinks group Diageo — also currently have good analyst support, so Unilever really does seem to be the black sheep of the family.
The company last reported results (Q3) as long ago as October. Most analysts were underwhelmed. RBC Capital, which has a neutral rating, said “this was an unimpressive quarter”, while the Unilever bear camp was further bolstered by Liberum initiating coverage with a ‘sell’ recommendation, and a lowly target price of 2,240p.
Unilever’s shares are currently changing hands for 2,618p (19 times 2015 forecast earnings), and it will be interesting to see the analyst response to the company’s 2014 results, which are scheduled for release next week (20 January).