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Berenberg lowers target price on Smith & Nephew
By Iain Gilbert
Date: Friday 01 Oct 2021
LONDON (ShareCast) - (Sharecast News) - Analyst 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.
"Given the weaker near-term performance that we now expect, we have reduced our 2021E and 2022E adjusted EPS estimates by 4% and 3% respectively but, as these changes are largely COVID-19-related, our adjusted EPS estimates decline by less than 1% thereafter. The 7% reduction in our DCF-derived price target is partly related to these forecast changes, but it is mainly a consequence of factoring rising UK bond yields into our DCF, which has driven our WACC up by 40bp to 6.3%."
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