Keller Group PLC (LSE:KLR) has been downgraded by Deutsche Bank on Thursday after the ground engineering specialist's shares climbed over 35% since the start of the year.
Two days earlier, the FTSE 250 group announced a 42% increase in its dividend and a new £100 million share buyback programme, equivalent to a total return yield of around 10%.
The results provided fresh evidence that Keller's impressive margin expansion can be sustained, Deutsche analyst Jonathan Coubrough said, with group EBIT margin doubling over the past two years to above 7%.
The "key debate" has been whether this level of margin can be sustained, he said, "as the margin has historically been cyclical and is now at a level not seen since before the GFC, when risk tolerance was much higher.
"This set of results has provided confidence in this regard, sustaining the margin for another year, and the reduced dividend cover to 3x is a sign of confidence that the step up can be maintained."
He upgraded his FY27 earnings per share forecasts by 10% and raised his target price from 1,660p to 2,200p.
But with the shares last closing at 2,215p and trading at around 10 times those upgraded forecasts, Deutsche's recommendation was cut to 'hold' from 'buy' as the analyst argued the stock looks "fairly valued" at current levels.
A capital markets day in the second half of the year is expected to provide more detail on the medium-term growth opportunity, Coubrough noted.