On Wednesday, Deutsche Bank (ETR:DBKGn) initiated coverage on Smith & Nephew PLC (LON:SN:LN) (NYSE: SNN), a medical technology company, with a Buy rating and a price target of GBP13.50. The firm highlighted the company's growth and innovation, noting the potential for Smith & Nephew's share prices to rise given their current valuation.
Smith & Nephew operates three global franchises in Orthopaedics, Sports Medicine & ENT, and Advanced Wound Management. Deutsche Bank's analysis pointed out that Smith & Nephew is beginning to see the benefits of sustainable top-line growth and a well-stocked pipeline due to focused research and development efforts.
Despite these positive developments, the firm recognized that Smith & Nephew's profitability has yet to match its growth, and the company's shares are considered to be in the "show me" bucket by the market. This term suggests that investors are waiting for further proof of performance before fully committing.
The analyst also mentioned that Smith & Nephew's shares appear undervalued at 10x EV/EBITDA, especially when compared to peers in the orthopedics space, such as Zimmer Biomet Holdings Inc. (NYSE:ZBH) at 10x and Stryker Corporation (NYSE:SYK) at 22x EV/EBITDA.
The report concluded with a note on the recent stake taken by an "activist" shareholder, suggesting that this could lead to Smith & Nephew increasingly being seen as a special situation investment.
The price target of 1,350p (GBP13.50) is supported by a Discounted Cash Flow (DCF) analysis and further backed by Sum of The Parts (SOTP) & regression analysis.
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