Broker snap: Whitbread fully valued, JPMorgan downgrades

11th Sep 2013 10:58

JPMorgan Cazenove has downgraded its rating for cafe, hotel and leisure group Whitbread from 'overweight' to 'neutral', saying that the company is a long-term winner but fully valued for now.Whitbread has outperformed the UK market by 25% over the past year, outperforming the European leisure sector by 19%. As such, it now trades at 17 times estimated earnings for the year ending February 2014. "With short-term headwinds we believe the shares are now full valued and would wait for a better entry point," JPMorgan said.Despite the downgrade, the bank said it is still confident that Whitbread's "strong brands" of Premier Inn (PI) and Costa will continue to deliver significant medium-term growth "through increased penetration of the branded offer as well as effective execution".Looking further ahead, it believes that PI's strategy to increase its London presence and its new 'hub by Premier Inn' concept will be on higher incremental returns.Second-quarter trading from Whitbread's PI and restaurants businesses were in line with JPMorgan's forecasts, but the performance at Costa missed estimates as the hot weather in July adversely affected sales.The bank has cut its adjusted earnings per share forecasts for this year from 169.06p to 167.4p, and for the year ending February 2015 from 188.56p to 187.66p. The target price for the stock has been reduced from 3,400p to 3,250p.The shares were extending losses on Wednesday morning following Tuesday's sharp fall, dropping a further 1.71% to 3,084.25p by 11:17.BC