Barclays Reinstates Smiths Group Coverage with 'Equal Weight' Rating, Cites Growth Hurdles

Barclays has reinstated coverage of industrial technology firm Smiths Group with an "Equal Weight" rating, forecasting that near-term challenges will cause the company to miss its own organic growth targets. The bank set a new price target of 2,740 pence, up from a previous 2,330 pence, citing updated forecasts and valuation models.

Growth Forecast Below Target

In a note to clients, Barclays projected that Smiths Group's organic revenue growth would be approximately 3% in fiscal 2027. This figure is significantly below the company's medium-term target of 5% to 7%.

The bank attributed the constrained outlook to specific headwinds facing Smiths' key divisions, John Crane and Flex-Tek. Despite these growth concerns, Barclays noted that following the sale of its Detection and Interconnect businesses, Smiths is now a structurally higher-margin company with potential for further profitability gains.

Divisional Challenges

Barclays identified distinct pressures on both of Smiths' main business units. The bank highlighted the following risks:

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• John Crane: This division faces volatility from its exposure to oil and gas markets. It also carries legacy legal risks related to ongoing U.S. asbestos litigation, for which the group maintains material provisions.
• Flex-Tek: This unit is currently grappling with a downturn in the U.S. residential construction market. Negative trends in housing starts and building permits have led to customer destocking and lower order levels, according to the note.

Financial Outlook and Valuation

Barclays' financial model estimates Smiths' adjusted earnings per share (EPS) at 124.8 pence for fiscal 2026, which is above the Bloomberg consensus of 114.0 pence. However, the bank forecasts a dip to 105.3 pence in fiscal 2027 before a recovery to 132.9 pence in fiscal 2028.

Analysts stated that a share buyback program running through calendar 2027 should provide support for the company's share price. Barclays' upside valuation case for the stock is 2,960 pence, while its downside scenario is 2,410 pence, based on historical performance metrics.