Overview#
BNP Paribas has recently downgraded British industrial company Smiths Group from "outperform" to "neutral." This decision stems from worsening conditions in the oil and gas industry, overshadowing the potential for a significant shareholder buyback. Following this news, Smiths Group's shares fell by over 6%.
Downgrade Details#
The brokerage reduced its target price for Smiths Group from 2,900p to 2,700p, representing a 7% decrease. With the stock currently trading at 2,600p, this implies a modest upside of 4%. Additionally, BNP Paribas has adjusted its earnings per share (EPS) estimates for 2026-2028 down by 2-3%. Specifically, the estimates for FY26 and FY27 have been lowered by 3% and 2%, respectively, placing BNP Paribas below the general market expectations for organic growth by 280 basis points.
Comparison with Rotork#
The downgrade was influenced by the recent financial results of Rotork, which BNP Paribas considers a close competitor to Smiths Group's John Crane division. Rotork reported a 1% decline in organic sales for its oil and gas sector in the second half of 2025 and forecasted flat growth for 2026. This contrasts with market expectations for John Crane, which anticipates a 4.9% organic growth for FY2026, suggesting a challenging outlook.
Future Considerations#
Smiths Group is expected to announce how it will utilize GBP1.85 billion from its Detection divestment in its upcoming H1 2026 results on March 20. BNP Paribas believes that a tender buyback would be the most effective way to return cash to shareholders and could support continued EPS growth after the divestment. However, the current negative outlook for the oil and gas sector raises questions about the company's growth guidance of 5-7% for FY27. The brokerage warns that ongoing negative earnings revisions may dampen investor sentiment in the short term.