Jefferies cuts Smith & Nephew target but stays optimistic

Jefferies has slashed its target price for medical devices maker Smith & Nephew from 1,400p to 1,250p after challenges in China weighed heavily on third-quarter results.

Nevertheless, the broker kept a 'buy' rating on the stock, saying that the shares' valuation is undemanding by historical standards.

Smith & Nephew reported on Thursday that it was cutting its 2024 and 2025 guidance on the back of struggles in China, where it was impacted by worse-than-expected headwinds across the surgical businesses.

"This is a clear step back as investors were slowly starting to reward management for improved visibility and consistency," Jefferies said in a research note on Monday.

"While unhelpful, China setbacks seem temporary and SN is slowly reaping the benefits from portfolio shifting toward faster-growth segments and recent R&D efforts, which support higher, sustainable growth."

The stock has dropped by around 20% over the past three months, leaving its close to an all-time low price-to-earnings ratio of just 12.5. Jefferies said it sees "ample room for [a] re-rating".

The shares were down 1% at 957.44p by 1127 GMT, having now fallen 13% over the past three days.