JPM Cazenove upgrades Smith & Nephew on forex, tax gains

Analysts at JPMorgan Cazenove update forecasts for Smith and Nephew (S&N) on Thursday leading to an upgrade for the medical technology group's rating to 'overweight'.

Cazenove moved its target price for S&N ahead to 1,411p from its previous 1,369p expectation after the FTSE 100 group enjoyed significant tailwinds from currency moves and recent US tax reforms.

The analysts noted that while they had expected a boost as a result of the changes to US tax laws back in December, S&N's announcement that its group tax rate would fall to 20-21% from its previous figure of 25% was better than they had initially expected.

In regards to the FX upgrade, JPMorgan saw a decent dollar tailwind that led to a 4% upgrade to its revenue forecasts for S&N.

As a result of the moves, JPMorgan felt S&N will beat its 2019 full-year revenue forecasts by around 2% and about 8% above its earnings per share targets.

Valuation in itself is not necessarily enough for an OW rating, but a new cost savings programme at the FY results would to drive some margin expansion, "although we are mindful that this could be captured in consensus", the research note read.