(Sharecast News) - Bank of America Merrill Lynch downgraded Centrica to 'equalweight' from 'overweight' on Wednesday and said it would switch into SSE, Engie or Fortum.
The bank noted that shares of the British Gas owner have risen 116% over the past year, outperforming both the sector and FTSE 350 by around 110%.
"We see the shares now approaching fair value and see better risk-reward opportunities elsewhere in the sector."
BofA, which lifted its price target on the stock to 190p from 150p, said: "While we continue to see a strong, and in many divisions improving, operating environment for Centrica, we see few catalysts near term to drive further re-rating.
"Sizeable dividend/buyback increases were announced at H1, and many of the notable regulatory changes to UK retail have now been introduced."
BofA ML said the market has shown a preference for shareholder distributions over growth investment in 2023, which in part propelled Centrica's share price.
"Although we have seen no change to this mindset so far, as we look into 2024 we think this debate could evolve if investors re-engage with the renewables sub-sector and/or yields start to decline. In such a scenario, we would expect a rotation out of Centrica and into more obvious growth stories, preferring SSE in the UK."
At 1430 BST, the shares were down 3.9% at 159.75p.
Centrica (CNA)