RBC Capital Markets has downgraded Frasers Group PLC (LSE:FRAS), the Sports Direct owner, to Underperform from Sector Perform.
The broker said the risk and reward on the stock has turned less favourable after a strong rally in the shares.
RBC nudged its price target up to 750p, from 720p, even though Frasers shares were trading at 753p, up 12% so far this year.
It said the rally reflects improving sentiment toward the sector and Frasers buying back its own shares at depressed levels.
RBC's scenario analysis implies 47% downside risk if the shares fall to 400p, against 33% upside if they reach 1,000p.
Frasers is valued at 8.5 times RBC's forecast for 2027 operating profit.
The broker called that a modest discount to the sector, justified by Frasers' complexity and limited trading liquidity.
RBC also flagged risk from Frasers' pending takeover bid for Hugo Boss, the German fashion house.
Frasers has offered €38 a share for the 73.9% it does not already own, a deal worth about £1.7 billion.
RBC estimates the deal would be only slightly accretive to earnings and would push Frasers' debt from 1.3 times cash profit to about 2 times.
A premium of just 4% to Hugo Boss' pre-announcement share price raises the risk that Frasers will need to pay more to secure the deal, RBC said.
RBC also pointed to pressure on lower-income shoppers from weak wage growth and rising living costs as a risk to Frasers' core UK sports retail business.
