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On Friday, HSBC analysts downgraded Smith & Nephew PLC (LON:SN:LN) (NYSE:SNN) stock from Buy to Hold, adjusting the price target to GBP10.70 from the previous GBP11.60. The revision comes despite acknowledging the potential of the company’s new 12-point program introduced by the CEO, which HSBC believes is more likely to yield positive results compared to past strategies. The program is noted for its specific Key Performance Indicators (KPIs) aimed at addressing the company’s critical issues.
HSBC’s assessment recognizes that Smith & Nephew has historically traded at a discount compared to its peers, and there is an opportunity to capitalize on the growing importance of Ambulatory Surgery Centers (ASC) with its smaller robotic product. However, the firm also points out the challenges Smith & Nephew faces, particularly in the US knees and hips market, where the company has experienced several years of consecutive underperformance.
The analyst from HSBC commented on the new initiative led by Smith & Nephew’s CEO, stating, "Smith and Nephew’s 12-point program announced by the current CEO comes across more convincingly than previous plans, in our view, with specific KPIs that directly address the pain points." This suggests that the new strategy has clear goals and a focus on addressing the company’s weaknesses.
Despite the optimism surrounding the new program, HSBC remains cautious due to the company’s historical underperformance in the US. The analyst added, "Although we still believe there is plenty of upside that can be achieved via a successful turnaround of the business, the underperformance, especially in the US knees and hips business, might be difficult to turn around after several years of sequential underperformance."
In summary, while HSBC sees potential for Smith & Nephew’s turnaround strategy to be effective, the firm has tempered its expectations due to the ongoing challenges in the US market, leading to the downgrade in stock rating and the lowered price target.
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