I’ve unearthed three UK shares that major brokers recently upgraded. However, some of them seem like odd choices to me – and I explain why below.
Flying high
Last Friday (2 February), Barclays upgraded low-cost carrier easyJet (LSE:EZJ) to ‘overweight’, citing the growing popularity of easyJet holidays as a promising factor. This relatively new offering from easyJet reported exceptionally good performance in the company’s latest trading update.
Previously considered ‘equalweight’, Barclay’s set a new price target of 700p for easyJet, up from 450p. The easyJet share price soared on the news, briefly spiking to 581p before settling at current levels around 569p.
easyJet only recently became profitable again after several years of debt following the pandemic. Yet despite the growth, it pays a negligible dividend of only 0.8%, with a payout ratio of 10%. While price analysis is positive, the earnings growth rate for easyJet is expected to remain low (12%) for the coming year.
Until now, the threat of further travel disruption has kept me from jumping into low-cost airline stocks like easyJet. But I believe this upgrade is a strong indicator that fears have dissipated and now could be the right time for me to buy.
The REIT choice?
Yesterday (5 February) Morgan Stanley upgraded its position on Land Securities (LSE:LAND) to ‘overweight’, suggesting the stock has greater value than previously thought. Elsewhere, analysts estimate the company to be trading at 12% below fair value, with earnings forecast to grow by 87% every year.
The £4.7bn real estate investment trust (REIT) has only £3.5bn in total debt – although this isn’t well-covered by cash flow. Shareholder returns were -9.7% in the past year, which is better than the UK REIT industry (-11.8%) but below the UK market (-7.2%).
The stock was up 1.23% at the close of day on Monday with a share price of 659p. The average 12-month forecast estimates a price target of 702p for Land Securities shares, a 7.15% increase from current levels.
Personally, I find the upgrade to be an odd choice – particularly following the recent interest rate cut delays that could negatively affect the UK housing market. Other brokers feel the same way. In mid-January, Land Securities was downgraded by both Exane BNP Paribas and Panmure Gordon.
Maybe Morgan Stanley know something I don’t, but I won’t be jumping into Landsec stock just yet.
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Banking on this stock
The London-based multi-currency bank Wise (LSE:WISE) was upgraded to ‘buy’ last week by Jefferies. The major brokers noted improved growth prospects for the bank after a recent expansion in its product offers.
Jefferies found that Wise users in high interchange countries increased by a fifth since mid-2021, while the percentage of users that are active daily increased from 20% to 33%. Subsequently, Jefferies increased its price target for Wise from 717p to 1024p
The Wise share price has since risen to 823p. But looking ahead, I’m not convinced.
Return on capital employed (ROCE) is a good indicator of performance, calculated by dividing earnings before interest and taxes (EBIT) by capital employed. At 18.9%, Wise is just below the 20% level that is considered a decent average. Despite strong growth throughout 2023, earnings are forecast to drop below 10% per year going forward.
I’ve been a Wise customer myself from the very beginning and it’s one of my favourite banks. But right now I’m not sure I want to expose myself further to the banking industry. While I’m sure it’ll continue to do well, I’m currently eyeing smaller stocks with more growth potential.
