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Broker tips: Spirent, Diageo, GlaxoSmithKline

By Alexander Bueso

Date: Thursday 16 Jan 2020

Broker tips: Spirent, Diageo, GlaxoSmithKline

(Sharecast News) - Analysts at Barclays Research downgraded their view on shares of Spirent from 'equalweight' to 'underweight', telling clients that the stock's valuation was "out of sync" with testing peers.
The broker's call followed a 112.0% run-up in the share price over the course of 2019, which easily outsripped the European technology sector's 35.0% jump and its peers' 75% jump.

Driving the price up were its leading positions in next-generation Ethernet testing and the 5G cycle, the analysts said, which had led to a 5.5% year-on-year increase in revenues, a pace not witnesses since 2014/15.

Yes, the company would continue to benefit from the longer 5G development and deployment cycle - but mostly in Wireline - and it would struggle to gain market share in Wireless versus the established players.

As well, restructuring had delivered stronger margins but those were already towards the upper end of the firm's medium-term guidance.

The analysts did up their target price from 159.0p to 190.0p but added "While we remain constructive on fundaments, we turn bearish on valuation with the recent rally leaving Spirent trading on all-time high multiples."

Analysts at Jefferies downgraded drinks maker Diageo from 'buy' to 'hold' on Thursday following "three very strong years of change" for the group.

Jefferies said it now sees a "more normalised outlook for growth", adding that it was becoming harder to identify the catalysts for over-delivery.

"DGE remains a well-run, diversified company that operates in a favourable industry, however, we move to 'hold' given less conviction on the upside to street expectations with the shares now fairly valued," said Jefferies, which issued the group with a 3,600.0p target price.

While Jefferies said Diageo had "stepped up the quality, pace and execution around innovation", as evidenced through first-mover advantage on pink gin and lower ABV vodka, the analysts deep dive on the group's banner year of innovation made them pause for thought until the next uplift from the innovation pipeline.

Barclays downgraded its stance on GlaxoSmithKline shares to 'underweight' from 'equalweight' on Thursday, as it said 2020 looks set to be a much tougher investment year of little growth.

The bank, which left its price target on the stock unchanged at 1,650p, said it was now modelling zero like-for-like sales and a slight earnings per share decline.

"Whilst dividend/free cash flow yields look attractive, the former is likely to remain a source of uncertainty and the latter elevated in the absence of a pipeline/growth story," it said.


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