Smith & Nephew PLC SN.

Smith & Nephew: Management’s Turnaround Plan Shows Green Shoots, but the US Still Trails

Smith & Nephew’s turnaround plan under CEO Deepak Nath seems to be showing signs of progress, especially outside the US. Though improvement has been taking hold, the pace remains on track with our expectations for the full year, and we’re leaving our fair value estimate unchanged. Operational issues for Smith & Nephew’s orthopedic business in the US remain challenging. Existing issues with low inventory of certain items and the availability and turnover of instrumentation sets in the US were already problematic, but any improvement has been hampered by turnover in the commercial organization in 2023. Management comments on the personnel situation suggest Smith & Nephew has been able to fill most vacancies, and we anticipate productivity of the new sales reps should take hold by early 2025. None of these issues have shifted our view of Smith & Nephew’s narrow economic moat, which remains grounded in surgeon switching costs and intellectual property covering its products.