UBS upgrades Smith & Nephew to 'buy'

23rd Jun 2015 08:25

UBS upgraded Smith & Nephew to 'buy' from 'neutral' and raised the target price to 1,275p from 1,175p."Our channel checks with wound nurses and industry experts lead us to believe that Smith & Nephew's wound division is currently operating below its potential," said UBS. It now sees scope for divisional earnings before interest, tax and amortisation margins to increase to 33% in 2019, compared with 18.6% in 2014.It noted that S&N has been losing share in core wound care products for the past decade as management has been focused on the higher growth negative pressure wound therapy opportunity, yielding the market leader position to Molnlycke."With a renewed focus on the US, catalysed by disappointing performance in H1 2014, S&N could regain share and benefit from the significant operating leverage we see in this business," it said.UBS added that the stock trades at around 17.5x 2016 estimated earnings, against the European medtech sector on 19.5x, despite Smith & Nephew offering revenue growth in line with the rest of the sector and better scope for margin expansion.At 08:29, Smith & Nephew shares were up 1.3% at 1,101p.