Smith & Nephew Improving But Shares Overvalued

We've increased our valuation for the medical devices manufacturer following strong results, but the shares are still overpriced

Holly Cook 26 February, 2015 | 1:43PM
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Morningstar analysts have raised their valuation of Smith & Nephew (SN.) shares following  respectable set of fourth-quarter results this week, showing the firm continues to make progress in improving profitability. However, trading at 1,174p at the time of writing, shares in the medical devices manufacturer continue to be overvalued by the market compared to our increased fair value estimate of 905 pence per share, or $28 for the ADRs.

Below is a synopsis from Morningstar analyst Debbie Wang's report on S&N.

Bulls Say

Smith & Nephew participates in the fast-growing sports medicine arena thanks to its extensive arthroscopy portfolio.

Smith & Nephew has successfully enlarged the orthopaedic patient pool by offering products for hip resurfacing and knee implants with new materials technology intended to last beyond the typical life span for knee replacements.

Smith & Nephew has been building out its presence in emerging markets. Considering the obstacles in developed markets that keep the firm from transforming into a top-tier player, Smith & Nephew may enjoy greater upside in developing markets.

Bears Say

Its mid-tier position among orthopaedic implant makers leaves Smith & Nephew vulnerable to being shut out as device formularies become more popular over the long term.

Despite Smith & Nephew's ongoing investments in infrastructure in the emerging markets, it could be a long time before business from that geography grows large enough to materially affect the company's total top line.

Ongoing austerity measures in Europe could damp Smith & Nephew's orthopaedic business through the near term.

Premium members can read Morningstar analyst Debbie Wang’s full research report on Smith & Nephew here. Not a Premium member? Not a problem! Get instant access to thousands of stock and fund research reports when you take a free 14-day trial

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Smith & Nephew PLC961.80 GBX-0.52Rating

About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites

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