Airport x-ray equipment provider Smiths Group PLC (LON:SMIN) was a top FTSE 100 gainer this morning after Goldman Sachs started coverage on the stock with a ‘buy’ rating.
In a note to clients, analysts at the US bank also set a 12 month price target for the engineering firm of 1,670p, noting that the stock trades at a 25% discount to the sector on its 2017 estimates, despite a strong share price performance in 2016.
They said they “see scope for this to narrow as the group returns to growth.”
The analysts added that they believe “an improved growth outlook, portfolio pruning (49% upside on “pure SOTP”), restructuring and cash conversion potential (57% FY11-16) could help drive further multiple expansion” and earnings growth for the firm.
In early morning trading, Smiths Group shares rose 1.3%, or 19p to 1,444p.
Elsewhere in the UK engineering sector, Goldman also started coverage positively on FTSE 250-listed firm Rotork PLC (LON:ROR), the world’s leading supplier of actuators.
Initiating with a ‘buy’ rating and a 12 month share price target of 280p, Goldman’s analysts said they expect Rotork’s earnings to “trough” in 2016.
They added: “After six years of declining returns, we forecast ROIC to expand 2% pts per year through to 2020, as earnings recover, service contribution increases and synergies from acquisitions are extracted.
The analysts also said that: “Consolidation is happening within the flow control industry; we believe Rotork’s multiple warrants an M&A premium.”
In reaction, Rotork shares were up 3.8%, or 9.5p at 259.2p.