Right now, Royal Bank of Scotland (LSE: RBS) (NYSE: RBS.US), ASOS (LSE: ASC) and Hargreaves Lansdown (LSE: ASC) are not winning friends among City analysts. Heres why.
Hargreaves Lansdown
Popular online stockbroker and fund supermarket Hargreaves Lansdown has been a great success story. Founded in 1981, trading from a bedroom, the Bristol-based company joined the stock market in 2007 and rapidly grew to become a FTSE 100 company.
However, the one-time City darling has fallen out of favour over the last year so much so that twice as many analysts now rate the company as a sell than a buy. Earnings forecasts have come down over the year, with analysts no longer seeing the company maintaining its previous breakneck rate of growth.
Even last months Budget proposal to allow retirees to sell their annuities which should be positive for Hargreaves Lansdown failed to shift analysts negative sentiment on the company. HL uber-bears UBS suggested providers offering financial advise (HL doesnt) could be bigger gainers, and that other Budget measures Help-to-Buy ISAs and the removal of tax on cash savings could divert flows away from equities and funds.
HL trades on a current-year forecast P/E of 33, and UBS reckons thats way too rich. The Swiss banks analysts have a 12-month share price target of 830p, which is getting on for 30% below the current price of 1,150p.
ASOS
Pioneering online fashion company ASOS is another one-time City darling that has fallen out of er, fashion. Analyst sentiment deteriorated as one profit warning followed another last year. By November, an unprecedented five analysts were rating the stock a sell. Today, that number has increased to seven although, to be fair, the company still retains a slightly larger coterie of supporters.
ASOS yesterday released half-year results that were better than expected more accurately, not as bad as expected and management said that after last years setbacks momentum in the business is building. Nevertheless, bearish analysts reiterated their sell ratings.
Analysts at Investec commented: The long-term story in our view remains one of continual investment suppressing margins; in the absence of material revenue outperformance, this leaves the shares overvalued. In a similar vein, Cantor Fitzgerald said: We believe the company will have to continue to discount and offer free delivery charges and returns to maintain sales momentum.
As with Hargreaves Lansdown, many of the ASOS bears actually like the business itself, but think the valuation is just far too high. Forecast current-year earnings put ASOS on an eye-watering P/E of 90 at a share price of 3,732p.
Royal Bank of Scotland
Royal Bank of Scotland continues to be the FTSE 100 finance house with the fewest City supporters. Only about 12% of analysts rate RBS a buy, while there are 36% in the sell camp.
Since the companys annual results at the end of February, Societe Generale has issued a downgrade to sell. The only move the other way I can find is from Investec, which goes only so far as to recommend a hold and with a reduced 12-month price target. In fact, most analysts whether positive, negative or neutral have cut their target prices since RBSs results.
The concerns of the bears are little changed, and include the overhang of the governments 79% shareholding, uncertainty about when dividends will resume, the continuing impact of fines and redress for past misconduct and the likely three or four years before the bank makes any kind of decent return on equity. A number of analysts see no reason why RBSs shares should trade above book value (387p) in the prevailing circumstances, while the bears have targets as low as 320p.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. The Motley Fool UK owns shares of ASOS. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
