Downgrading to Market Perform - Catalysts Exhausted (For Now)
Recommendation: We are downgrading our recommendation on Thales shares from Strong Buy to Market Perform due to exhaustion of near-term potential positive catalysts, strong performance over the past 15 months since 3 July 2015
(+54% in absolute terms vs -6% for the SBF 120 index), little to no near-term EPS upside, and a broadly fair valuation on trading multiples. We are trimming our 2017 adjusted EPS estimate to reflect mild disposal, FX, and pension headwinds.
We regard Thales’ portfolio exposures, strategy, competitive strengths, and medium-term revenue growth prospects as being the best in large-cap European defence, but we see further price upside from these levels as being limited.