Investors in Smith & Nephew plc (LON:SN.) had a good week, as its shares rose 9.6% to close at UK£13.11 following the release of its yearly results. It looks like a credible result overall - although revenues of US$5.2b were in line with what the analysts predicted, Smith & Nephew surprised by delivering a statutory profit of US$0.60 per share, a notable 15% above expectations. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. Readers will be glad to know we've aggregated the latest statutory forecasts to see whether the analysts have changed their mind on Smith & Nephew after the latest results.
Taking into account the latest results, the consensus forecast from Smith & Nephew's twelve analysts is for revenues of US$5.45b in 2022, which would reflect an okay 4.5% improvement in sales compared to the last 12 months. Statutory per share are forecast to be US$0.60, approximately in line with the last 12 months. Before this earnings report, the analysts had been forecasting revenues of US$5.52b and earnings per share (EPS) of US$0.71 in 2022. The analysts seem to have become more bearish following the latest results. While there were no changes to revenue forecasts, there was a real cut to EPS estimates.
It might be a surprise to learn that the consensus price target was broadly unchanged at UK£15.10, with the analysts clearly implying that the forecast decline in earnings is not expected to have much of an impact on valuation. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. There are some variant perceptions on Smith & Nephew, with the most bullish analyst valuing it at UK£18.75 and the most bearish at UK£10.26 per share. This shows there is still a bit of diversity in estimates, but analysts don't appear to be totally split on the stock as though it might be a success or failure situation.
These estimates are interesting, but it can be useful to paint some more broad strokes when seeing how forecasts compare, both to the Smith & Nephew's past performance and to peers in the same industry. It's clear from the latest estimates that Smith & Nephew's rate of growth is expected to accelerate meaningfully, with the forecast 4.5% annualised revenue growth to the end of 2022 noticeably faster than its historical growth of 1.3% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to see revenue growth of 7.5% annually. So it's clear that despite the acceleration in growth, Smith & Nephew is expected to grow meaningfully slower than the industry average.
The Bottom Line
The biggest concern is that the analysts reduced their earnings per share estimates, suggesting business headwinds could lay ahead for Smith & Nephew. Fortunately, the analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Smith & Nephew's revenues are expected to perform worse than the wider industry. The consensus price target held steady at UK£15.10, with the latest estimates not enough to have an impact on their price targets.
With that said, the long-term trajectory of the company's earnings is a lot more important than next year. We have forecasts for Smith & Nephew going out to 2024, and you can see them free on our platform here.
You can also view our analysis of Smith & Nephew's balance sheet, and whether we think Smith & Nephew is carrying too much debt, for free on our platform here.
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