Morgan Stanley downgrades Sports Direct, says it's no longer undervalued

Sports Direct International was under the cosh after Morgan Stanley downgraded the stock to ‘equalweight’ from ‘'overweight', keeping the price target at 680p, saying the risk/reward is now more balanced.

It said that with 8% implied downside from the current share price, an ‘equalweight’ stance is more appropriate.

“We continue to like the Sports Direct story in the UK and remain open-minded on its overseas expansion. However, we no longer view the international business as a free option with the shares up nearly 20% in the last six months,” it said.

The bank pointed out there has been a lack of progress on M&A within Continental Europe and said there are question marks over how well key international market Austria is progressing.

Still, the shares have risen by nearly 20% whereas consensus forecasts have been broadly flat.

MS said that on an absolute and relative basis, therefore, the stock has re-rated.

MS said upside risks to its view would include rapid share gains in SPD’s current overseas investments and/or announcement of international acquisitions. A key downside risk would be a more direct challenge from Decathlon in its key markets.

At 1000 BST, Sports Direct shares were down 2.6% at 719.50p.