Here’s the reason behind Citi’s downgrade of Smiths Group

Citi has downgraded Smiths Group PLC to Neutral from Buy, expressing concerns over valuation following the stock's surge to a record high after recent results. The investment bank retained its £30 price target on the British engineering firm. Citi highlighted significant progress Smiths Group has made in asset disposals and offloading legacy liabilities, including pension and asbestos obligations.

The company's fiscal 2027 guidance was found to be in line with prevailing expectations. Citi forecasted an upgrade to fiscal 2028 growth estimates if there is a recovery in oil and gas markets, although near-term catalysts for the shares are limited. The bank increased its fiscal 2027-2029 earnings per share estimates by 7% to 9%, mainly due to lower projections for net financial expenses.

Smiths Group's underlying forecasts for operations remain largely unchanged. The investment firm valued the company using a sum-of-the-parts methodology, applying fiscal 2027 enterprise value-to-EBIT multiples of around 16 times for John Crane division and 14 times for Flex-Tek.