Smith & Nephew raised to 'buy' at Goldman Sachs

23rd Mar 2015 09:21

Smith & Nephew has been raised to 'buy' from 'neutral' at Goldman Sachs on Monday due to improving fundamentals and under-appreciated strategic value.Goldman also increased its target price on the stock, up to 1300p from 1200p.The bank said Smith & Nephew's stock has been a notable under-performer despite solid FY14 results, with sentiment driven largely by questions on whether the company is still a likely acquisition target."We continue to believe that further consolidation in orthopaedics - with Smith & Nephew being acquired by a larger player - makes strategic sense, though recognise the multiple hurdles to a potential transaction," said Goldman.The bank expects 2015 to mark an important turning point for the company. "We expect organic top-line growth to re-accelerate to around 5% per year versus the 2009-14 average of below 3% as Smith & Nephew benefits from ongoing utilisation recovery in the US, and addresses some of the recent causes of underperformance in the wound business," said Goldman.It added that it also sees meaningful opportunities for margin expansion "driven by integration of Arthrocare and the $120m efficiency program announced in 2014."