Berenberg reiterates 'buy' rating on Smith and Nephew

Analysts at Berenberg retained their 'buy' rating on medical equipment manufacturer Smith & Nephew on Monday but slightly lowered their price target on the group from 2,265p to 2,250p.

Berenberg said the solid performance of Smith & Nephew's shares so far in 2019 had been largely been driven by investor confidence in a return to overall revenue growth in line with the 4% average growth seen in its various end-markets.

In this sense, the German bank conceded that all the "low-hanging fruit" had already been picked but added that there was "plenty more left on the tree".

Berenberg stated S&N's 2020 adjusted price-to-earnings ratio of 21.0x was not yet reflecting above-market revenue growth, in its view, and neither were consensus estimates.

"Driven by improving operational execution and recent product acquisitions, we think above-market growth is exactly what the company will deliver in the coming years. In turn, we expect upgrades to consensus earnings expectations," said Berenberg.

However, they did add one caveat, "poorly received or poorly executed large-scale M&A remains the key risk for the shares, in our view, but thus far the new management team has shown good discipline."

Berenberg's adjusted its earnings per share estimates slightly, lowering them 0.2-0.5% per annum as lower interest expense expectations look set to only partly offset FX effects but highlighted the fact that its £22.50 target price still reflects a "healthy" 19% potential upside.