JPMorgan upgrades Diploma to 'overweight', hikes price target

(Sharecast News) - JPMorgan upgraded Diploma on Monday to 'overweight' from 'neutral' and hiked the price target to 8,250p from 5,760p to reflect its view that it's a high-quality compounder, capable of sustaining double-digit earnings per share growth into the medium term. "We have underestimated the earnings upgrade capacity of Diploma in 2026, with organic growth, margins and M&A all sources of upside YTD," the bank said.

"Looking forward, we expect organic growth to moderate in FY27 (closer to the long-term average of circa 6% after two years of very strong growth) and margins to reduce from their FY26 peak (as spot pricing in Peerless is adjusted to position for continued volume growth); we see these trends reflected in both management commentary and consensus estimates, i.e. they should not be sources of negative surprises."

JPM said that while its forecasts include announced M&A only - in line with the approach across its coverage universe - the bank's M&A upside scenario suggests Diploma can deliver a double-digit EPS compound annual growth rate out to FY30 from a year-end September 2026 base.

"Absolute valuation multiples are at elevated levels relative to history, but not so on a relative basis versus a peer group of other decentralised compounders and US distributors, with whom Diploma compares favourably on growth and returns," it said.

JPM said the revised price target is in line with the average of its chosen peer group.

At 1305 BST, the shares were up 1.5% at 7,300p.