Broker tips: ITV, Ultra Electronics, IAG

(ShareCast News) - Goldman Sachs downgraded ITV to 'neutral' from 'buy' and cut the price target to 297p from 329p on the back of a softer advertising outlook and ongoing rating weakness that it said could weigh on programming costs.The bank noted that since being added to the 'buy' list on 12 October, 2009, the stock is up 432% versus the FTSE World Europe up 9.8%.GS continues to the see the broadcaster as structurally well positioned compared to its peers, given its exposure to content (30% of revenue) and strong management.It said that over time, ITV should benefit from the rising value of content and the convergence between telco and media, which makes it a potential M&A target.However, in the near term, Goldman highlighted the risk to advertising and programming costs, which could materialise at the full year results this week.It said soft ratings - the ITV audience is down 4%-5% in 2014/15 - the end of major shows and the change of the Director of Television could result in greater programming reinvestment in the near term.The bank raised its estimates for programme costs by £12m to £1.05bn as it reckons ITV will reinvest to compensate for the end of programmes such as Downton Abbey or Mr Selfridge and the softness of other key shows, such as the X Factor.GS cut its 2016 earnings per share estimate by 5% as a result to 17.8p, versus consensus of 18p.It said that while the stock's valuation is not expensive, there is more limited near-term upside given the lack of major positive earnings momentum and the de-rating of US peers. Ultra Electronics was issued a 'buy' rating and a target price of 2,060p by Investec after the company reported its full year results.The FTSE 250 firm reported a 1.8% rise in 2015 revenue to £726.3m. Underlying operating profit was up 1.6% to £120m, and underlying profit before tax was largely flat, moving up 0.4% to £112.4m.Chief executive Rakesh Sharma said the UK Strategic Defence & Security Review and the two-year US federal budget brought some welcome stability late in the period, though the industry was still unsure how they would play out. He expects US defence spending to increase in a presidential election year but "these higher levels of spending will take time to benefit the mid-tier defence industry".During the year, the group also completed its acquisition of the Electronic Products Division of Kratos Defense & Security Solutions, which was renamed as Ultra Electronics Herley. The company also introduced a new market segment structure and launched a Standardisation and Shared Services (S3) programme.Investec said the 2015 results and guidance for 2016 were in line with its expectations. Net debt of £296m was better than the broker's expectation due to lower capital expenditure and an increased focus on working capital. However, the 4% increase in the full year dividend to 46.1p was 2% below Investec's forecasts."A new market-facing business structure, the launch of the S3 restructuring programme and the acquisition of Herley should help Ultra capture share in a recovering defence budget environment," said analyst Rami Myerson."We expect a return to organic growth and improving cash generation over the coming years to drive a re-rating of the shares. Buy."The broker upped its full year 2016/2017 estimates for earnings before interest and tax, and earnings per share by less than 1%. Revenue forecasts for both periods were raised 2% to reflect a weaker sterling. However, the dividend estimate for 2016/17 was reduced by 4% and 7% respectively. Credit Suisse stuck to its medium-term earnings forecasts for IAG on Monday, telling clients the company offered a "compelling" recipe for free cash flow.Analysts Neill Glynn, Julia Pennington and Tim Ramskill kept their forecasts for the airline carrier´s earnings before interest and tax intact between 2016 and 2018 intact.For 2016, they had penciled in EBIT of €3.6bn (£2.82bn), which was equivalent to 54% year-on-year growth and 11% ahead of the consensus estimate.Free cash flow would benefit from a "limited encroachment" from competitors on BA, which would lead to pricing outperformance, with "benign" capacity growth in London-US/Europe looking "under-appreciated".The latter was expected to grow by about 3% in 2016, which would ordinarily suggest "robust" pricing, without fuel tailwinds, the broker said.In their opinion, markets were also ignoring the structural progress made by the carrier.They pointed out how the company had "impressively" reduced unit costs, acquired Aer Lingus, agreed a Latam joint-business-agreement and grown closer to Qatar Airways.Combined, those measures were worth €1.7bn in EBIT by 2020, they said.Lastly, estimated 2016 free cash flow suggested the company had "ample scope" for cash distributions, the Swiss broker said in a research report sent to clients.Credit Suisse stuck to its 'overweight' recommendation and 852p target price. ITV