Spirax-Sarco Engineering PLC (LON:SPX) shares were knocked off their all-time high as Goldman Sachs downgraded the steam-control specialist to a ‘sell’ recommendation.
Goldman cut its rating from its previous ‘neutral’ stance, but still upped its share price target to 7,500p from 6,700p with the FTSE 100 group’s shares having surged more than 50% in 2019.
READ: Berenberg prefers ‘outstanding’ Spirax-Sarco over rival engineers Spectris and Rotork
At its record 9,440p closing price the previous day, Spirax was trading at a greater than 110% premium to the European capital goods sector on consensus 12-month forward valuation rating.
However, Goldman’s analysts noted, the company “is near peak margins, faces a sequentially slowing growth outlook and has enjoyed some unrepeatable tailwinds”.
The analysts forecast 4% compound annual organic sales growth over the next three years versus 3% for the sector, driven by decelerating industrial production globally, softer growth in the Watson Marlow business, and near-term drivers unwinding.
READ: Spirax-Sarco builds up steam but warns about slowing industrial growth
“In addition, we believe that Spirax’s ability to out-grow its markets could fade,” they wrote in the note to clients on Thursday, predicting that current margins offer limited expansion potential.
Following three years of sector-relative outperformance, with the shares up around 140% over that time, the analysts “now see downside risks to consensus”.
Spirax shares were down 3% to 9,150p on Thursday.