Broker tips: Smith & Nephew, AO World, Pearson
Analysts at Berenberg cut their target price on medical equipment manufacturer Smith & Nephew from £20.20 to £18.80 on Friday, stating the firm was now facing a "bumpier road" to the "same destination".
Berenberg, which stood by its 'buy' rating on the stock, said it continues to believe that Smith & Nephew's current share price "materially" undervalues its longer-term revenue growth and margin expansion potential, noting it has "good products" in growth markets, the ability to sell them effectively and a "largely under control" cost base.
However, the German bank stated that with Covid-19 still affecting the business and cost pressures only building, the short-term outlook for S&N was looking "increasingly uncertain", in its view.
"Thus, if we only took a short-term view, we would find it hard to recommend buying Smith & Nephew's shares, but they are so undervalued, in our view, that we simply view any near-term volatility as an opportunity," said the analysts.
Analysts at Jefferies reiterated their 400.0p target price on shares of AO World on Friday despite stating the firm was just another in a long line of retailers to face "challenging" 2020 comparatives.
AO World reported that group revenues for the six months to 30 September grew just 5% year-on-year and 66% on a two-year basis and added that it expects revenue growth in the second half to be at a similar rate to the first six months.
While Jefferies noted the half had been impacted by driver shortages and supply chain disruption, more concerningly, it said, was that the competitive environment in Germany seemed to have "stepped up markedly", with revenue growth of 3% well below its full-year estimates of 35% growth.
After combing through the firm's guidance, Jefferies also stated that AO's "unscheduled and disappointing" update implied a roughly £10.0m hit to full-year underlying earnings.
"We see the UK shortfall as fairly understandable, given well-known challenges around driver shortages, global supply chains, and the difficulties of predicting growth against demanding comparatives. The situation in Germany, however, is going to require deeper consideration - just as the model had appeared to be fixed, a new layer of competitive challenge seems to have emerged. Once again, AO has questions to answer regarding its international growth aspirations," concluded Jefferies.
Citi said on Friday that the overall risk/reward on education publisher Pearson "tilts positively".
The bank, which rates the shares at 'buy', said there is a risk in the run-up to the third quarter that Pearson investors "miss the wood for the trees".
Citi noted that for the first time in more than a decade, there is a prospect of enrolment growth in US higher education. It also said that Pearson+ will likely be additive to growth over time and could be a catalyst for a re-rating.
Finally, the bank said the recent selloff in the shares has created an "interesting valuation opportunity".