Namal Nawana joined as chief executive back in May, and Morgan Stanley analysts reckon there are plenty of levers he has already started to pull which can push the company to the next level.
“We raise our organic sales growth assumptions marginally for FY19E and FY20E to reflect our growing conviction that core weakness in several underperforming divisions is being systematically addressed by the new CEO and his recent appointments,” read a note to clients.
“We see the investment case consisting of 1] Accelerating organic sales growth in underperforming categories; 2] Operational leverage driving up margins; 3] Valuation on 10-year lows of -20% relative to the peer group; and 4] Balance sheet optionality not in our forecasts.”
For 2019, the analysts are forecasting sales growth of 1.7% to US$5.02bn, while they reckon underlying earnings should rise 4.0% to US$1.14bn, boosted by a pick-up in margins.
As for the following year, they see sales rising 3.9% to US$5.22bn and underlying earnings climbing 5.7% to US$1.21bn.
Alongside the upgrade, Morgan Stanley hiked its price target to 1,692p from 1,457p, implying 15% potential upside to the current share price of 1,467p.
Deutsche Bank also upgrades
Analysts at Deutsche Bank were also getting in on the act, although they were still somewhat less bullish than their peers at Morgan Stanley.
The German bank said sector-wide profit taking “seems to have gone too far” which should make 2019 a bumper year for companies in the European MedTech & Healthcare services industry.
As a result, it lifted Smith & Nephew to ‘hold’ from ‘sell’ and raised its price target to 1,350p from 1,200p, although that is still some way short of the current price.
Despite the two upgrades, Smith & Nephew shares dropped 0.8% to 1,463p in early deals on Monday.