Investing.com -- Morgan Stanley (NYSE: MS ) has downgraded Holcim (SIX: HOLN ) to "equal weight" in a research note dated Wednesday, citing concerns over the recent surge in share prices that are not adequately backed by earnings growth.

The analysts flagged that the re-rating of EU heavy building materials stocks, including Holcim, has largely been driven by optimism around the potential reconstruction of Ukraine rather than fundamental improvements in construction activity or earnings prospects.

The report noted that heavy construction materials companies under Morgan Stanley’s coverage have seen a 17% year-to-date re-rating, but this shift has not been accompanied by meaningful improvements in key market indicators across Europe and the U.S.

The financial impact of potential rebuilding efforts in Ukraine, while a significant geopolitical event, is expected to have only a limited effect on Holcim’s earnings given that domestic production in Ukraine and neighboring Turkey is likely to meet the bulk of demand for materials such as cement and flat glass.

Holcim's valuation had climbed in anticipation of increased demand from a post-war reconstruction boom, but Morgan Stanley analysts argue that the actual financial benefits are likely to be smaller than expected.

Additionally, with earnings revisions trending slightly negative across the sector and no clear catalyst for further fundamental growth, the brokerage sees little justification for maintaining an "overweight" rating on the stock.

Energy costs remain another factor weighing on Holcim’s outlook. Morgan Stanley strategists remain bullish on European gas prices, with supply constraints expected to persist even in the event of a peace deal.

Given that energy costs represent around 10% of revenues for companies in the sector, any further price increases could pressure margins.

While the long-term investment case for Holcim remains intact, Morgan Stanley believes that the rapid appreciation in its share price has outpaced the actual earnings potential tied to the Ukraine reconstruction scenario.