Goldman starts Smith & Nephew at ‘buy’, cites improving fundamentals

It noted the shares have underperformed European Medtech in three of the last four years and have lagged the sector by around 12% year-to-date.

"The cumulative underperformance since 2019 is more than 45%," it said. “We think that is set to change. We see a clear case for improved performance leading to +5/13/15% revenue/EBIT/EPS compound annual growth rate in FY23-25e, which is a meaningful acceleration and looks compelling in the context of valuation."

The bank said the ortho segment has held back Smith & Nephew’s performance in recent years, but evidence points to an improving trajectory.

"Operational and commercial issues weighed on performance in Ortho but improving commercial execution, innovation and disciplined pricing can drive better growth," it said. "Smith & Nephew has narrowed the gap versus peers in recent quarters, and we believe evidence points to an improving trajectory."

Goldman also said the company’s medium-term margin targets are challenging but achievable.