Broker tips: GlaxoSmithKline, Astrazeneca, Hikma, Shire, Petrofac, ARM Holdings

HSBC initiated coverage of the European pharmaceuticals, saying the re-rating over the last few years looks set to continue.

In terms of UK stocks, it initiated GlaxoSmithKline at 'buy' with a 1,700p price target, and AstraZeneca and Hikma Pharmaceuticals at 'hold' with 4,640p and 1,936p price targets, respectively. It also started Shire Pharmaceuticals at 'reduce' with a 4,734p price target.

Liberum upgraded GlaxoSmithKline to ‘hold’ from ‘sell’, but cut the price target to 1,350p from 1,400p.

“Somewhat counter-intuitively, we believe a dividend cut is increasingly likely and necessary and therefore we upgrade,” said Liberum.

Liberum said that clearly there is considerable dividend yield support at present and if the dividend is cut, that support will be removed. However, it pointed out that if the dividend is cut, the company will change its strategy.

By cutting the dividend, GSK would have significant strategic flexibility with a multitude of options to enhance the quality of earnings, it said.

Deutsche Bank has lowered its stance on oilfield services group Petrofac from ‘hold’ to ‘sell’ and cut its target price from 890p to 875p, suggesting that the recent rise in the stock was “unwarranted optimism”.

Due to the $220m anticipated losses for 2015 from the Laggan-Tormore gas plant in the Shetlands, Deutsche Bank has slashed its earnings per share forecast for Petrofac this year from $1.20 to just $0.70.

“With 10% downside to our base-case we downgrade to ‘sell’. The key risks remain project execution,” it said.

ARM Holdings slumped 3% on Friday after Bernstein downgraded the stock to ‘underperform’ from ‘market perform’ and slashed the price target to 800p from 1,000p.

Bernstein had upgraded ARM to ‘market perform’ at the beginning of the year, anticipating material earnings revisions as the migration to ARM v8 would boost royalty revenue growth this year and stabilise Semi Content per Device.

However, the brokerage said these revisions are now behind us, the stock is well above fair value and there is a risk of earnings disappointment in the second half and next year.