Smith & Nephew: Latest thoughts including Q3 preview and JNJ 'situationship'

J.P. Morgan reiterates Neutral on Smith & Nephew (SN.L) with a Dec-27 price target of 1,290p. Ahead of Q3 results on 4 November, we forecast sales 2.2% below Bloomberg consensus, with organic growth of 2.4% versus consensus 3.5% and company guidance of c.4%, and a 0.6% FX headwind versus a consensus tailwind. We expect FY26 revenue growth of 2.9%, implying guidance may be cut to c.3% from c.4%, while the c.$1.3bn trading profit target depends on faster cost removal. Medium-term guidance of 6-7% revenue CAGR for 2025-28 looks likely to be reset to 4-6%, versus consensus c.5%. The FT reported that JNJ and S&N explored a reverse merger of JNJ's ortho business into S&N, which failed over the choice of CEO. Ortho is c.38% of S&N sales and would be c.75% of the combined company; a deal could fix scale and margin issues but dilute revenue growth from c.5% to 3.7%. Valuation is not expensive, but we see more downside than upside risk to guidance and consensus.