The market stumbled out of the opening block this morning but there are two ASX stocks in particular that are crashing after being hit by broker downgrades.
The S&P/ASX 200 Index (Index:^AXJO) fell 0.3% in early trade as ongoing fears of a second COVID-19 wave of infections weigh on investor sentiment.
It will be hard to shake the sinking feeling in the near-term with coronavirus dominating headlines, but the two downgrade candidates will have other things to worry about as well.
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Big cracks emerging
The first is the Adbri Ltd (ASX: ABC) share price, which crashed 7.2% to $2.18 at the time of writing after UBS downgraded the stock by two full notches to "sell" from "buy".
This makes the stock the worst performer on the ASX 200 and significantly behind the Bega Cheese Ltd (ASX: BGA) share price, which is the second worst with its 3% plus fall.
The broker's bearish change of heart comes on news that Adbri lost a major contract with Alcoa to supply lime.
Lime lost its flavour
"Key to our ABC Buy call was the expectation that the Lime division was a stable but high margin contributor to the business, which would insulate ABC from any weakness in its concrete/cement division," said UBS.
"However, the loss of a major Lime contract has now shaken this view. Despite having a high margin, ABC's inability to renegotiate the contract is concerning given the significance of it (40% of Lime production)."
The broker cut its price target on the stock to $2 from $2.82 a share.
Metal fatigue
Another major underperformer is the Sims Ltd (ASX: SGM) share price. Shares in the scrap metal group tumbled 2.9% to $7.39 this morning to become the third worst performing ASX 200 stock.
This time it's Jarden that delivered the blow to the stock as it downgraded its recommendation to "neutral" from "outperform".
The broker warns that Sims will miss consensus earnings forecasts by a mile as it cut its earnings expectations on the group.
Cum-profit downgrade?
"Our 2H20 forecasts are shaped by the evident weakness in scrap pricing, volumes, and soft US scrap peer trading results for the period through MayQ20," said Jarden.
"We note that 1H21 trading has commenced from a position of scrap pricing and volumes weakness, and with heightened uncertainty, and risk of potential demand destruction, under COVID19."
The broker is now forecasting Sims to post an earnings before interest and tax (EBIT) loss of $52 million for FY20, which is around 50% below the median consensus estimate.
Jarden dropped its 12-month price target on the stock to $7.95 from $9.10 a share.
