Smith & Nephew plc

SNN : NYSE : US$70.03
SN : LSE
BUY 
Target: US$77.00

COMPANY DESCRIPTION:
Smith & Nephew is a global developer of orthopedic and wound care medical devices. The company is a top-five
player in the total joints, trauma, and wound care markets.
All amounts in US$ unless otherwise noted.

Life Sciences — Biomedical Devices and Services
STRADDLES ORTHOPEDICS AND WOUND CARE; INITIATE WITH BUY AND $77 PRICE TARGET
Investment recommendation
We are initiating coverage with a BUY rating and $77.00 price target.
We believe Smith & Nephew is well positioned over the near term with
new product cycles and reduced headwinds in Ortho Recon. From a
long-term perspective, we believe its acquisition and emerging market
strategy will position it for sustainable growth in faster-growing
markets. Lastly, we note that Smith & Nephew will continue to return
capital to shareholders via dividends and stock buybacks, which should
lead to predictable double-digit EPS growth in 2014.
Investment highlights
 Deeper into wound care – Continued investments into highergrowth
market segments including bio\actives and Negative
Pressure Wound Therapy (NPWT) have accelerated growth.
 Emerging market/multi-tiered product focus positions Smith &
Nephew to leverage off of existing and future investments in fastergrowing
market segments of Orthopedics.
 Recon – Positioned to ride the new product cycle wave. A new
product cycle in knees and a lessening headwind from MoM
decreases positions SNN for improved growth going forward.
 Restructuring initiatives protect cash generating potential and
should drive operating profit growth above revenue growth rates.
Valuation
Our 12-month price target of $77.00 is derived from a 18.5x multiple applied to our 2014 EPS estimate of $4.16.

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