Citi downgraded Babcock International Group Plc on Thursday to 'neutral' from 'buy' as it increased its price target and said the company's medium-term guidance is conservative.
"The key question is how conservative and what does that mean for valuation? We estimate that taking the low end of guidance, the fair value is 1,119p, so the market is already pricing in more," Citi said.
"Flexing the drivers, we establish a range of fair values up to 2,000p, with our base case fair value of 1,464p.
"We then add an additional 90p of optionality from Babcock's participation in X-Energy's AMR and Rolls-Royce's SMR programs to give our new target price of 1,554p - with only circa 8% upside, we are downgrading to neutral."
The target price was lifted from 1,338p.
At 0900 GMT, the shares were down 1.8% at 1,397p.