Shares in Babcock International PLC (LSE:BAB) dipped 3% in late morning trading after Deutsche Bank moved the defence contractor from ‘buy’ to ‘hold’.
The bank reckons the stock is up with events having motored 22% in the last month and doubled in value in the last six.
It acknowledged the company’s solid operational performance, highlighting double-digit revenue growth and a 0.5 percentage point improvement in profit margins.
Management also nudged up its medium-term profit margin target to 9%, from 8% previously, and committed to a £200m share buyback – a sign of confidence in the balance sheet and cash generation.
Deutsche Bank has lifted its earnings forecasts for the next two years by as much as 9%, yet it believes the shares may now have run ahead of themselves. The stock closed at 1,157p on Thursday, well above the revised target price of 1,115p.
While the business outlook remains positive, underpinned by steady organic growth, cash flow strength and margin improvement, the downgrade suggests investors may want to pause for breath after a strong run.
The shares fell 31p to 1,126p.