Smith & Nephew PLC (LSE:SN)’s underperformance is set to change, according to Goldman Sachs (NYSE:GS).
The investment bank has initiated coverage of the medical technology outfit with a 'buy' rating and price target of 1,400p, around 40% higher than today’s share price.
Goldman pointed out S&N shares have underperformed European Medtech in three of the last four years and have lagged the sector by 12% in the year to date.
The cumulative underperformance since 2019 is more than 45%, but the bank thinks that is set to change.
It sees a clear case for improved performance leading to 5/13/15% revenue/EBIT/EPS compound annual growth rate between 2023-25, which is a meaningful acceleration and looks compelling in the context of valuation.
The bank accepts operational and commercial issues weighed on performance in Ortho but thinks improving commercial execution, innovation and disciplined pricing can drive better growth.
Improving visibility on margin in 2024 guidance could be a catalyst, especially in the context of valuation, the bank thinks.
Goldman also acknowledged GLP1 concerns but pointed out previous phase III trials of GLP1s did not show a statistically significant reduction in knee pain.