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On Jul 3, 2013, Zacks Investment Research upgraded Smith & Nephew (SNN - Snapshot Report) to a Zacks Rank #2 (Buy) from a Zacks Rank #3 (Hold).

Why the Upgrade?

Smith & Nephew has watched its earnings estimates trend higher since it reported first-quarter 2013 results. Out of 6 analysts covering the stock for 2013, 2 revised estimates upwards with no downward revision. Similarly, 2 out of 4 analyst covering the stock for 2014 revised estimates higher over the last 60 days.

Based on the quarterly performance, business expansion strategy, improved outlook for the industry and gradual stability in the U.S. market, earnings estimates have been moving higher for this worldwide medical technology company.

The company reported revenues of $1,075 million in the first quarter to edge past the Zacks Consensus Estimate of $1,064 million. Moreover, Smith & Nephew has an average earnings beat of 3.33% over the last 4 quarters. The long-term expected earnings growth rate for the stock is 6.90%.

Since it reported the first-quarter 2013 earnings results on May 2, 2013, the company has undertaken several initiatives to strengthen its product portfolio and expand its geographical foothold. During the earnings call, Smith & Nephew announced an agreement to take over Adler Mediequip Private Limited and with it, the brands and assets of Sushrut Surgicals Private Limited, a leader in mid-tier, orthopaedic trauma products for the Indian market.

The buyout gives the company an opportunity to gain a foothold in the burgeoning trauma market in India. The acquisition will also support the company’s plans to develop offerings for the mid-tier market in India.

Last month, Smith & Nephew unveiled a strategic partnership to promote its IV3000 range of cannula dressings from its Advanced Wound Management (AWM) franchise in the U.K. The company’s persistent focus on AWM franchise has already begun to yield positive results.

Smith & Nephew also stands to gain from the improved economic overview in the U.S. and stability in the orthorecon market. Meanwhile, the trauma and extremity business represent high-growth avenues.

Accordingly, the Zacks Consensus Estimate for 2013 climbed higher to $3.88 per share as estimates were revised upwards over the last 60 days. The estimate revision trend for 2014 was also bullish with the Zacks Consensus Estimate currently pegged at $4.27 per share, a 10.21% growth projection.  

Smith & Nephew is due to report its second quarter 2013 results in late Jul/early Aug. The Zacks Consensus Estimate at the moment is pegged at 91 cents per share.

Other Stocks to Consider

Among other stocks in the industry, Wright Medical Group Inc. (WMGI - Analyst Report), Hanger Inc. (HGR - Analyst Report) and ResMed Inc. (RMD - Analyst Report) appear impressive. While Wright Medical carries a Zacks Rank #1 (Strong Buy), the others are Zacks Rank #2 stocks.

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