Broker tips: Smith & Nephew, RSA, Easyjet

6th May 2010 13:16

First quarter results from medical devices firm Smith & Nephew were ahead of expectations and Killik & Co thinks there is more to come from a company it describes as a 'world leader' in its field."We believe the long-term outlook for the group is positive. Its markets are expected to generate mid-single digit volume growth, driven by ageing demographics, more-active lifestyles, the increase of diseases, such as obesity and diabetes, and growth in emerging markets. At present, emerging markets account for less than 10% of group sales, but population growth and a growing middle class provide plenty of potential for the group's well respected products," Jonathan Jackson, Head of Equities at Killik said."In a consolidating market, organic growth has been supplemented by acquisitions, and with its strong balance sheet (net debt of $783m) the group is well placed to take advantage of further opportunities. In addition, although the group's enterprise value is £6.5bn, it is not itself immune as a target in the ongoing process of M&A in the sector," Jackson adds.Trading on a multiple of 12.9 times projected earnings per share for 2011 the stock is undervalued both by historic standards and in relation to its global peer group, the broker argues.Panmure Gordon has reiterated its 'buy' recommendation on RSA after the insurer released a strong first quarter trading update on Thursday, saying the shares have fallen too far."The shares have been impacted by the wider fall in the investment market together with a general malaise towards the non-life insurance sector a whole. This is both unfortunate and unwarranted given the consistently good performance of RSA led by a hugely competent management team," Panmure analyst Barrie Cornes said."Shareholders are enjoying a very attractive 2010E dividend yield of 7.4%. We maintain our Buy recommendation and 150p target price," the broker concluded.Broker Charles Stanley is more ambivalent about the stock though it acknowledges that the trading update was a positive one."Our recommendation remains Hold as we believe that the rating environment remains difficult and we will be interested to see how the new acquisitions in Sweden, Denmark and the Oman bed down in Q2 2009," said Charles Stanley analyst Nic Clarke.Commerzbank has reiterated its 'buy' stance on no-frills airline Easyjet citing the growth in passenger numbers recently, adding it expects interim losses to come in at £81m, which is at the top of recent company guidance.Second quarter figures are due next week from the airline. The German broker says EasyJet's targeted growth strategy, focusing on key markets and customer groups, may mean yield development is flat, but it still likes the underlying story. Commerzbank's target price is 500p.