European stocks are feeling the affects on the economic slowdown in the U.S., but with growth accelerating elsewhere around the globe, might the European markets be benefiting more than in the past? We spoke with Zacks senior equities analyst
Duong Vuong, CFA to find out.
Let's talk about one of your most recently issued research reports. Which company was it on, and how is it doing?
Recently, I completed an equity research report on Smith & Nephew (SNN) . In it, I mentioned we are maintaining a Hold recommendation after the company's first quarter results.
The company is benefiting from its Earnings Improvement Program (EIP), and the recent stock buy-back should provide support to the stock. The stock is trading below its peers, but with the uncertainty surrounding sales practices at its European subsidiary, there is little upside in the near term.
Smith & Nephew is a U.K.-based global medical device company that employs over 7,000 people, and operates in 32 countries. It develops, manufactures and markets orthopedic, endoscopic, and advanced wound management products. The company's geographical breakdown is as follows: Europe 31%, America 48%, and Africa, Asia, and Australia 21%.
Tell us a bit about the sales practice concerns.
The company's weak quarterly results were largely related to the ongoing integration of the Swiss orthopedic Plus, a company that SNN agreed to buy in March 2007 for $889 million. The company said that when it started to integrate the business, it uncovered 'unacceptable' sales practices in certain parts of Europe, although it didn't specify what those sales practices were. Efforts to improve sales standards hurt first-quarter performance, predominantly in Greece, and will continue to depress performance this year, it said.
The stock is currently trading at 18.0x our 2008 EPADS estimate, which is slightly lower than the average of its peers of 19.6x. However with the uncertainty surrounding Plus, there would be little upside in the near term. We note that our quantitative model
also has a Hold on the stock. Our six-month price target is $57.00.
Do you cover any European-based commodity-oriented stocks?
In fact, we do. We are maintaining a Hold recommendation on Anglo American (AAUK). The company is benefiting from strong demand for commodities around the globe and increase production. However, risks to global economic growth remain, and the strength of the South African rand could have a significant impact on future earnings.
London-based Anglo American, Plc is a global leader in mining and natural resource sectors. The company has operations in Africa, Europe, South and North America, and Australia.
