Jefferies has upgraded Renishaw PLC (LSE:RSW) and XP Power Ltd (LSE:XPP) to 'buy', betting that a longer and stronger semiconductor cycle will drive further earnings upgrades at both companies.
The broker also lifted its long-standing 'underperform' rating on Halma PLC (LSE:HLMA) to 'hold', while keeping Oxford Instruments PLC (LSE:OXIG) at 'hold', in a note published on Wednesday covering the semiconductor exposure across its UK industrials coverage.
Renishaw PLC (LSE:RSW), the precision measurement and healthcare technology group, saw its price target raised sharply to 6,090p from 3,450p, implying 20% upside.
Jefferies expects semiconductor demand to drive mid-teens organic revenue growth, most of it flowing through the group's highest-margin Position Measurement division, and sees mid-20% profit margins as achievable for the first time since 2022.
XP Power, which supplies power units to chipmaking equipment firms including Applied Materials and Lam Research, had its target lifted to 2,330p from 1,870p, offering 30% upside.
The broker said the company is firmly in recovery, with first-half order intake up 50% year on year and its balance sheet no longer a concern.
Halma, whose Avo Photonics arm supplies optical components used in data centres, was upgraded after a sharp de-rating since April.
Jefferies said the stock now trades at a 49% premium to the wider UK industrials sector, the lowest since March 2018, and set a 3,660p target for 3% total shareholder return.
The analysts argued the market is right to value Avo Photonics below the rest of the group given its heavy reliance on a single unnamed hyperscaler customer.
Oxford Instruments kept its hold rating, with the target nudged up to 3,000p from 2,590p for 8% upside.
The broker cited limited growth outside semiconductors and stalled progress towards the group's 20% margin target.
Underpinning the calls is what Jefferies described as an unprecedented chip upturn, now stretching to 34 consecutive months of growth and fuelled by data centre construction.
It noted July sales rose 135% against already strong comparisons.
Jefferies flagged that Renishaw's non-semiconductor operations trade at 16.6x earnings, the cheapest of the four names and a 25% discount to Oxford Instruments, despite similar margins and what it called more favourable end-market support.
