JPMorgan upgrades Smith & Nephew, says recent de-rating ‘overdone’

JPMorgan Cazenove upgraded Smith & Nephew to ‘overweight’ from ‘neutral’ on Friday as it argued the recent de-rating was overdone.

"Shares have de-rated to 10-year lows in recent weeks on: 1) concern on a margin guidance downgrade post-H1 soft margins and 2) GLP-1 impact on procedures," the bank said.

It added that stronger-than-expected third-quarter revenues are likely to build confidence that top-line growth is sustainable.

"Operating leverage from these revenues combined with phasing/cost savings and commentary on the margin outlook means the feared near-term downgrades won’t materialise," JPM said.

"We think the GLP1 impact on ortho has been overplayed. The downgrade cycle that started in 2018 looks finally to be coming to an end - or at least is in sight."

JPM said the de-rating was "overdone" and it believes investors are likely to revisit the investment case.

The target price was cut to 1,248p from 1,405p.

GLP-1 drugs are weight-loss drugs and there have been concerns that healthcare companies such as S&N, which treat overweight patients for knee-related issues, will be negatively impacted by the drugs.

At 0915 GMT, the shares were up 3.8% at 998.20p.