UBS has downgraded British bakery chain Greggs PLC (LSE:GRG) from Buy to Neutral, citing valuation concerns following a 26% increase in the company’s share price since the beginning of 2026.
The investment bank maintained its price target of 2,200 pence, indicating that its revised recommendation reflects the stock’s valuation rather than a deterioration in its earnings outlook.
According to UBS, Greggs’ recent share price performance has already incorporated much of the improvement in its trading prospects, including stronger third-quarter sales growth, cost-saving initiatives and an upgraded profit outlook.
The downgrade comes despite continued progress in the company’s operational performance and its longer-term expansion strategy.
Greggs Valuation Returns to Historical Levels
UBS highlighted the bakery chain’s valuation as the principal reason for changing its investment recommendation.
Following the 26% year-to-date share price increase, Greggs trades at approximately 17 times estimated earnings for fiscal 2026.
This compares with the company’s long-term average price-to-earnings multiple of around 16 times, excluding the periods affected by the COVID-19 pandemic.
At the beginning of 2026, the stock traded at approximately 14 times forward earnings.
UBS said the subsequent increase in the valuation multiple largely reflects growing confidence in Greggs’ business outlook.
The bank believes that the improvement in investor expectations is now substantially reflected in the share price, reducing the potential for further valuation-driven gains.
Although the recommendation has been lowered, UBS has not changed its earnings forecasts for the company.
Third-Quarter Sales Growth Supported by Higher Volumes
Greggs reported an acceleration in like-for-like sales growth during the third quarter, supported by improvements in customer volumes.
The stronger performance addressed one of the main concerns previously raised by investors about the bakery chain’s trading momentum.
Like-for-like sales measure revenue growth at comparable existing locations, providing an indication of underlying business performance without the contribution from newly opened stores.
For Greggs, the improvement suggests that customer demand strengthened during the quarter.
The company also upgraded its profit outlook, supported by a combination of sales performance, menu innovation and continued operational discipline.
UBS acknowledged these developments as positive factors but indicated that the market had already responded to the improving trading environment.
The bank’s decision to move to Neutral therefore reflects a reassessment of the balance between the company’s operating prospects and its current valuation.
Cost Savings Remain Central to Profitability Plans
Greggs continues to focus on controlling operating expenditure and improving efficiency across its business.
The company is targeting £11 million in cost savings during fiscal 2026, compared with £13 million achieved or targeted for fiscal 2025, according to the figures cited by UBS.
These initiatives form part of the bakery chain’s efforts to support profitability while continuing to invest in its store network and manufacturing infrastructure.
Menu innovation is another component of the strategy, with the company seeking to maintain customer interest and support sales growth through product development.
UBS identified these operational measures as contributors to the company’s improved earnings outlook.
However, the bank did not revise its existing earnings estimates following its latest assessment.
Manufacturing Consolidation Expected to Deliver £20 Million in Savings
Greggs is also pursuing longer-term efficiency improvements through the consolidation of its manufacturing operations.
The company expects the programme to generate approximately £20 million in annualised savings across fiscal 2028 and 2029.
Manufacturing consolidation is intended to improve the efficiency of the production network and support the bakery chain’s wider operational requirements.
The projected savings could provide an additional contribution to profitability as the programme progresses.
However, the anticipated benefits remain subject to successful implementation and the company’s ability to achieve the targeted efficiencies.
The savings programme forms part of Greggs’ broader strategy to strengthen its cost structure while expanding its national presence.
Greggs Maintains Long-Term Target of 3,500 Stores
Alongside its cost-reduction initiatives, Greggs continues to identify opportunities to expand its retail network.
The company maintains a long-term ambition of operating approximately 3,500 stores across the UK.
This target represents a potential opportunity for further growth through new store openings and an expanded customer base.
The strategy is supported by investment in manufacturing capacity, distribution infrastructure and operational efficiency.
UBS continues to recognise the company’s expansion potential, although its revised rating suggests that the current share price already reflects a significant portion of the expected improvement.
The investment bank did not identify any change to Greggs’ long-term store opportunity in its latest assessment.
Investor Positioning Becomes More Balanced
UBS also pointed to changes in investor positioning as a factor in its revised view of the stock.
The bank said positioning in Greggs shares is now broadly neutral, while short interest has declined from previously elevated levels.
Short selling involves investors taking positions that may benefit if a company’s share price falls.
A reduction in short interest can indicate that fewer investors are positioning for a decline in the stock.
However, it can also mean there is less potential for additional buying pressure from investors closing bearish positions.
UBS indicated that the change in positioning, alongside the share price rally and higher valuation, has reduced the attractiveness of the stock at current levels.
UBS Maintains Earnings Forecasts Despite Rating Change
The downgrade to Neutral does not reflect a reduction in UBS’s expectations for Greggs’ financial performance.
The bank retained its existing earnings estimates and maintained its 2,200p price target.
Its assessment acknowledges the company’s improving sales momentum, upgraded profit outlook, operational savings and long-term expansion plans.
However, with the shares having gained 26% since the start of the year and the valuation returning to approximately its historical average, UBS believes the investment case is now more balanced.
For investors, the key developments to monitor will include the sustainability of like-for-like sales growth, delivery of planned cost savings and progress towards the company’s long-term store expansion target.
The latest rating change highlights the distinction between an improving business outlook and the valuation investors are being asked to pay for that growth.
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