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Berenberg slightly raises target price on Smith & Nephew

Analyst at Berenberg raised their target price on medical services firm Smith & Nephew from £18.25 to £18.40 on Friday following the firm’s “extensive meet-the-management event” a day earlier.

Berenberg stated Smith & Nephew had laid out its medium-term margin expectations and committed to regular share buybacks at the event, leading it to take a fresh look at the stock in order to factor the new disclosure into its forecasts.

Overall, Berenberg said its view on S&N remained unchanged, asserting that it was “a much better business” than the market gives it credit for and, if it can deliver on its promises, the analysts said potential upside for the shares was “significant”.

Factoring in recent Covid-19 trends and new guidance resulted in 7-9% reductions to the German bank’s 2022-2026 adjusted earning per share estimates but Berenberg stated a slight drop in the risk-free rate and a lower equity weighting in its weighted average cost of capital calculation, along with rolling the discounted cash flow forward to 2022, meant its DCF-derived price target increased to £18.40 per share, almost exactly 50% above Thursday’s closing price

While Berenberg, which reiterated its ‘buy’ rating on the stock, acknowledged that Smith & Nephew’s products were largely used in elective surgery procedures, leaving it “vulnerable” to the effects of Covid-19 on procedure rates, the analysts believe the however long effects from the coronavirus persist, it expects them to be “transitory” and to have “little to no bearing on the long-term outlook”.

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