Smith & Nephew Sees Early Signs of Turnaround Results but Still Faces Near-Term Challenges in 2023

With CEO Deepak Nath approaching his one-year anniversary at Smith & Nephew, the firm seems to be making progress on its turnaround plan, though it has yet to manifest itself in higher top-line growth and profitability gains that we think can be maintained. We’re holding steady on our fair value estimate. While economic profits disappeared in 2020 thanks to COVID-19 damping non-urgent procedures, Smith & Nephew has benefited more recently from the resumption of regular procedure volume, launches of key new products that have filled distinct gaps in the portfolio, and improved operations to address demand. These developments and the strength of underlying switching costs and intangible assets give us confidence that the firm’s narrow economic moat remains solid.