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Investing.com -- IMI PLC (LON:IMI) stock fell 2.8% on Tuesday after RBC Capital Markets downgraded the engineering company to Sector Perform from its previous rating, citing valuation concerns rather than fundamental business issues.
The downgrade comes as IMI shares have gained 26% year-to-date, significantly outperforming RBC’s equal-weighted coverage average of 10% and the FTSE All Share’s 15% increase.
Despite acknowledging IMI as a "high quality business," RBC analysts noted the stock’s price-to-earnings ratio of 16.3x for 2026 estimates is approaching the coverage average.
RBC maintained that IMI is less cyclical than in the past and is exposed to attractive secular drivers, forecasting 4% organic sales growth for 2025 compared to a pan-European coverage average of 3.2%. However, the firm expects a "still subdued start to 2026" due to lingering post-tariff uncertainties in general industrial markets.
The analysts reduced their 2026 earnings per share estimate for IMI by 1%, a modest adjustment that brings their EBITA forecast in line with consensus. RBC set a price target of 2,500p based on a target P/E of 17.5x for 2026 estimates, broadly in line with their pan-European coverage average.
While IMI’s valuation "is not overly challenging," according to RBC, the stock is now trading at the higher end of its 5-year range, both on an absolute and relative basis, limiting further upside potential.