(ShareCast News) - Canaccord Genuity downgraded defence technology specialist Qinetiq to 'hold' from 'buy' as it noted the company's solid third-quarter update on Wednesday but said shares were up with events.
The brokerage said that following recent strong trading, which saw the shares rise 17% over the last three months, Qinetiq is now valued in line with the sector on an EV/EBITDA basis and at a premium of around 10% on a price-to-earnings valuation.
"Given the company's solid track record, order visibility, balance sheet strength, and investment optionality we think a premium rating to peers is deserved. We also think there is further upside potential to our current forecasts with bolt-on M&A, increased capex, and contract extensions - all of which have been demonstrated recently - and view the more positive outlook for Global Products as encouraging."
However, Canaccord said another major earnings accretive M&A transaction is less likely in the near term given the likely focus on successfully integrating the Meggitt Target Systems business.
The brokerage expressed confidence that QinetiQ will continue delivering margins above the baseline profit rate, but said there is still some uncertainty as to the degree the Single Source Regulations Office will revise margins.
Canaccord maintained its 285p price target on the stock.
At 0930 GMT, the shares were down 1.8% to 271.80p.