JP Morgan has spotlighted Smith & Nephew PLC (LSE:SN) for its revenue acceleration and margin expansion potential, setting a price target of 1,300p - a 21% premium to the current stock price.
Despite investor scepticism, the bank has added S&N to its Analyst Focus List (AFL), highlighting its attractive risk-reward profile in the healthcare sector.
Following a period of modest growth, the FTSE 100 med-tech giant has broken the 2-3% revenue growth trend it was locked into for over a decade following the financial crisis, with expectations of it sustaining over 5% top-line growth in the years following Covid. This is underpinned by a strategic pivot towards higher growth categories and successful acquisitions.
JP Morgan's analysis identifies the potential for significant margin improvement, anticipating over 250 basis points of expansion over the next two years, driven by operational leverage and a rigorous cost savings program.
Despite some market concerns over achieving these targets, the American bank believes the concerns are overstated, pointing to manufacturing efficiencies and strategic planning that support a realistic pathway to margin goals.
The note also addresses the disproportionate focus on the US knees segment, representing around 9% of group sales, suggesting that broader improvements across the business could alleviate specific concerns and contribute to an upward reevaluation of the company's stock.
In afternoon trading the shares were flat at 1,079.5p.