Broker snap: Nomura wary of rising competition for Smith & Nephew

27th Jan 2012 10:03

Nomura has maintained its neutral rating on medical devices marker Smith & Nephew (S&N) after assessing the read-across from US sector peers in the orthopaedic industry.This week, Zimmer, Stryker and Johnson & Johnson (J&J) have released their fourth quarter results, which were largely in line with expectations, Nomura notes."Growth across developed markets appears disappointing, particularly in the US, as demonstrated by a 0.4% US sales contraction at Depuy (a J&J subsidiary) and a 2.0% contraction in Zimmer's US orthopaedics business," said analysts Martin Brunninger and Chris Cooper.They note that when speaking to S&N's management last, they expected the ex-US market to offer stronger growth potential over the short- to medium-term, offsetting growth in the US and EU. "Overall, we see a higher competitive dynamic developing in the orthopaedic market during 2012. Double-digit earnings growth will be a challenge, in our view, given continued subdued sales trends and pricing pressure from governments," the analysts said.They also suggest that increased competition from S&N's US rivals could lead to market share losses for the company, particularly in the developed markets.With shares trading at 12.2 times forward earnings, Nomura think that the valuation is slightly demanding "given the size and lack of critical mass of S&N in the orthopaedic sector".A neutral rating and 596p target price are maintained.Shares were down 0.873% at 608p in morning trade on Friday.BC