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J.P. Morgan has upgraded London-listed Diploma Plc to “overweight” from “neutral,” citing stronger earnings potential from organic growth, margins and mergers and acquisitions. The bank also raised its December 2027 price target to 8,250 pence, compared with its previous December 2026 target of 5,760 pence.
Diploma shares closed at 7,200 pence on August 21, up 0.91%.
The brokerage significantly increased its earnings forecasts, lifting its FY26 adjusted earnings-per-share estimate by 14.6% to 253.98 pence from 221.68 pence. Its FY27 adjusted EPS forecast was raised 14.7% to 263.65 pence from 229.80 pence.
Analyst Jane Sparrow and the J.P. Morgan team acknowledged they had “underestimated the earnings upgrade capacity of Diploma in 2026.”
However, growth is expected to normalize in FY27. J.P. Morgan forecasts organic growth moving toward Diploma’s long-term average of about 6% following two exceptionally strong years. Margins could also ease from their FY26 peak as the company adjusts spot pricing at its Peerless subsidiary to support volume growth.
Consensus FY26 EPS estimates have climbed 34% since Diploma reported FY25 results last November, while FY27 forecasts have risen 33%. Diploma stock has gained 36% during the same period, broadly keeping pace with the earnings upgrades.
Diploma currently trades at roughly 27 times calendar-year 2027 earnings and 19 times EV/EBIT. J.P. Morgan’s selected peer group of decentralized compounders and U.S. distributors averages 28 times earnings and 22 times EV/EBIT, with the bank saying Diploma compares favorably on growth and returns.
The new 8,250-pence target is based on a 22-times CY2027 EV/EBIT multiple, replacing the bank’s previous discounted cash flow valuation method.
J.P. Morgan estimates that sustained M&A spending could support a 10% EPS compound annual growth rate between FY26 and FY30, rising to 16% in an upside scenario.
Risks include Diploma’s increasing exposure to Aerospace, uneven M&A-driven growth, potentially reduced confidence in management guidance and worsening economic conditions in the U.S. and UK.
