Smith & Nephew hit by Barclays downgrade

Barclays downgraded Smith & Nephew to an 'equalweight' rating from 'overweight' because of recent disappointing results, risks from competitors and likely delays to earnings-enhancing initiatives.

Although it upped its price target very slightly to 1,240p from 1,230p, Barclays said it was "difficult to say at this point when we can expect S&N to generate the sustainable mid single digit top line growth it is capable of and drive margins to levels in line with industry peers".

It noted that the solid progress in the US knee business had been masked by disappointments in Emerging Markets and Wound Care, while there were "risks from a resurgent Zimmer Biomet and an unforeseen issue in S&N’s increasingly complex portfolio".

Barclays analysts suggested the board should undertake "investor friendly strategic opportunities" such as bolt-on deals, cost cutting and pruning assets to free up resources but that the upcoming management team transition could delay such key initiatives.

"In our view, only delivery against these options can ignite investor sentiment on the stock," they wrote, cutting 2016 earnings per share forecasts by 5% to $0.83 and by 8% to $0.91 for 2017.