Jefferies upgrades Smith & Nephew to 'buy'

The bank pointed out that S&N has rebalanced away from hips and knees and now has leading positions in higher-growth segments. Jefferies said it now views S&N as a medical device conglomerate.

“Many investors still view the company as a pure-play orthopaedic manufacturer, which is not appropriate, in our view.”

In addition, it said pricing concerns over Comprehensive Care for Joint Replacement were overdone.

“Trading at a 17% sector discount, the market has overstated CJR reimbursement risk and undervalued a 150 basis points uplift in organic growth atop a leaner cost base,” Jefferies said.

“Beyond 12% earnings per share compound annual growth rate, there is upside optionality from capital deployment and M&A.”

The bank said China was likely to be soft for another quarter but it expects an inflection in the second half, removing both the 1-2 percentage point growth dilution and the uncertainty overhangs.

At 1025 BST, Smith & Nephew shares were up 2.4% to 1,163.50p.