Compass Group PLC (KON:CPG) has been downgraded by Jefferies after the caterer’s shares far outperformed the wider European market during the recent vaccine rally.

The shares, which started the year at around 1,900p but fell to below 1,000p during the year, began this week just over 1,230p before climbing sharply above 1,400p.

READ: Compass Group back to breakeven but concerned about new lockdowns

To maintain a ‘buy’ rating, Jefferies analysts said, their price target would need to exceed 1,650p which would be valuing the stock at 27 times the investment bank’s 2023 forecast earnings, which they suggested was excessive.

“Given an uncertain outlook, it is also useful to frame valuation relative to the previous peak,” the analysts said.

Adjusted for May’s £2bn, 12% equity issue, the last set of full-year earnings per share would have been 74p and while Fazer acquisition from March provides a 1.5% accretion tailwind, the analysts said “permanent scarring” from working from home could be a potential headwind of around 5%.

After the vaccine bump, the shares are trading at around 20 times this 71-72p adjusted previous peak EPS figure.

“We still believe Compass is the best-in-class industry operator but the share price assumes rapid recovery and consensus margin recovery assumptions look optimistic.”

As such the rating was downgraded to ‘hold’ based on a price target of 1,400p.

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