Why Are Smith & Nephew Shares Cheap?

VIDEO: Shares in the medical devices company have been under pressure this year, but Morningstar analysts rate the company's prospects

James Gard 29 November, 2021 | 10:15AM
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James Gard: Each week we look at one stock that is cheap or expensive and why. This week it’s the turn of Smith & Nephew, which has a four-star rating from Morningstar.

This FTSE 100 company was founded in Hull in 1856 and now operates in more than 100 countries across the world. Smith & Nephew has three key divisions: wound management, orthopaedics and sports medicine. The orthopaedic division is the largest contributor to the company’s revenue, and it’s the one that our analysts are most positive about. This part of the business makes replacement joints for knees, hips and shoulders. The first knee replacement surgery was performed more than 50 years ago, but the technology has since become very advanced. According to Morningstar analyst Debbie Wang, Smith & Nephew has been an innovator this field, developing products with a lifespan of up to 30 years. Orthopaedic surgeons are loyal customers too, Wang adds, because of the high costs of changing implant providers. Sports medicine is also a fast-growing area of the company, with products used in keyhole surgery for sports injuries.

Looking at the financials, Smith & Nephew yields around 2% and has a narrow economic moat. The shares have a fair value of £15.34, but trade around £12.50 after a 20% fall this year.

For Morningstar, I’m James Gard.

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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James Gard  is content editor for Morningstar.co.uk