Panmure Liberum has cut its target price for Smith & Nephew PLC (LSE:SN), the medical devices maker, to 1120p from 1250p, while maintaining its 'hold' rating.
The broker said it still struggled to make a credible investment case after a disappointing second quarter and the departure of chief financial officer John Rogers, who is leaving to become CFO of Baxter.
Smith & Nephew has underperformed the knees market for more than a year, a decline the broker attributed mainly to the lack of a cementless knee product in its range.
The company's revenue guidance for the year was cut from around 6% growth to around 4%, while trading profit guidance was left unchanged at around 8% growth.
Panmure Liberum said this was partly due to one-off tariff refunds and roughly 50 million dollars of additional cost savings, and expressed some scepticism over how sustainable further savings would be.
The broker lowered the multiple it uses to value the company from 9.5 times next-twelve-month earnings before interest, tax, depreciation and amortisation to 8.5 times, reflecting concerns over the achievability of short- and medium-term targets.
Smith & Nephew's shares have fallen just under 15% so far this year and 8% in the past month, despite an ongoing share buyback, with $250 million completed to date, and Cevian Capital increasing its stake to just over 14%.
Panmure Liberum said it would only consider buying the shares if the board pursued more drastic strategic changes, including potentially spinning off the Orthopaedics division.
