Broker tips: Wizz Air, Smith & Nephew

(Sharecast News) - Analysts at RBC Capital Markets lowered their target price on low-cost carrier Wizz Air from 3,400.0p to 3,200.0p on Friday following the group's interim results. RBC Capital said it now forecasts net income of roughly €354.0m for Wizz in 2023/24, towards the lower end of the firm's €350.0m-400.0m guided range, and noted its largest downgrades were in 2024/25, reflecting guidance for flattish capacity.

However, the Canadian bank remained at 'outperform' on the stock, stating expectations on engine headwinds had now been rebased and said even a partial margin recovery offers scope for roughly 150% potential share price upside.

"We think delivery of Wizz Air's FY23/24E guidance will require a resilient 2H given the company's exposure to Israel, and engine challenges. Mgmt expects an improved unit revenue performance in 4Q (when capacity growth steps down to +15% from +25% in 3Q)," said RBC. "Whilst visibility should be limited, we also see this as likely (with Easter timing supportive in 4Q). However, this means proof of delivery on 2023/24E will need to wait until FY results on 23 May."

RBC added that it expects Wizz Air to be past the worst of aircraft groundings by the second half of next year, allowing focus to shift to longer-term prospects.

Goldman Sachs initiated coverage of Smith & Nephew with a 'buy' rating and 1,400.0p price target on Friday, as it pointed to improving fundamentals and an undemanding valuation.

The bank noted the shares had underperformed European Medtech in three of the last four years and lagged the sector by around 12% year-to-date.

"The cumulative underperformance since 2019 is more than 45%," it said. "We think that is set to change. We see a clear case for improved performance leading to +5/13/15% revenue/EBIT/EPS compound annual growth rate in FY23-25e, which is a meaningful acceleration and looks compelling in the context of valuation."

GS said the ortho segment has held back Smith & Nephew's performance in recent years, but evidence points to an improving trajectory.

"Operational and commercial issues weighed on performance in Ortho but improving commercial execution, innovation and disciplined pricing can drive better growth," it said. "Smith & Nephew has narrowed the gap versus peers in recent quarters, and we believe evidence points to an improving trajectory."

Goldman also said the company's medium-term margin targets were challenging but achievable.