JPMorgan has upgraded Smith & Nephew PLC (LSE:SN) to 'overweight' from 'neutral', pointing out shares have de-rated to 10-year lows in recent weeks.
This reflected concerns on a margin guidance downgrade post-H1 soft margins and secondly GLP-1 impact on procedures.
But the bank thinks stronger-than-expected third-quarter revenues are likely to build confidence top-line growth is sustainable.
“Operating leverage from these revenues combined with phasing/cost savings and commentary on the margin outlook means the feared near-term downgrades won’t materialize,” JPM believes.
It also thinks the GLP-1 impact has been overplayed.
It reckons the downgrade cycle that started in 2018 looks finally to be coming to an end and the de-rating is overdone.
On Thursday, the firm said revenue in the third quarter rose 8.8% to US$1.36 billion from US$1.25 billion a year earlier, representing underlying revenue growth of 7.7% and reported growth of 8.5%, including an 80 basis point foreign exchange tailwind.