Diploma PLC (LSE:DPLM) has been handed a rare “double upgrade” from RBC Capital, which has shifted its stance from underperform straight to 'outperform', lifting its target price from 4,500p to 6,000p.
Investors liked what they heard: the shares rose 3% in morning trading on Friday to 5,402.5p.
The bank argues that Diploma, a specialist distributor with operations spanning controls, seals and life sciences, deserves its valuation premium thanks to a strong track record and further growth potential.
RBC expects the company to beat consensus forecasts for organic revenue growth over the next three years, driven by continued strength at Windy City Wire and Peerless in North America, as well as steady gains in seals and life sciences.
Earnings momentum is also seen as a distinguishing factor. RBC calculates that Diploma could deploy about £1.1 billion on acquisitions over the next three years without overstretching its balance sheet, potentially boosting earnings per share by 20% by 2028.
The group has already proved adept at bolt-on deals, with previous purchases such as Windy City and Peerless paying off handsomely.
Diploma is not cheap: it trades at the top end of the sector on forward earnings multiples.
But RBC thinks that is justified when set against its high returns on invested capital, strong cash generation and consistent ability to deliver growth through the cycle.
In a sector where many large caps are seen as recovery plays, the broker sees Diploma as one of the safer growth names available.
For now, the message is clear: RBC believes Diploma still has room to grow, even if the price tag already looks full.