The company, which is slumping to this year's lows after its latest quarterly results, was founded in 1856 in England by Thomas James Smith as a pharmacy. After his death in 1896, the company was taken over by his nephew Horatio Nelson Smith, who renamed the company Smith & Nephew. Today, the company specializes in the development, manufacture and distribution of medical devices and is one of the leaders in the industry.

Smith & Nephew operates in several key areas, including orthopedics, sports medicine, endoscopy and wound care. Its main products include artificial joints (hip and knee implants), sports medicine devices, endoscopic instruments and advanced wound care products.

The company places a strong emphasis on innovation and quality, enabling it to provide medical solutions that significantly improve patients' lives. With more than a century of history, Smith & Nephew is synonymous with reliability and excellence in healthcare, enabling it to maintain its market leadership and continually contribute to advances in medical care.

The company is now operating on much lower margins and operating profit than in recent years. However, the declining business should return to normal in the coming months. The orthopedics and health care business is still growing on its own, but in this analysis, we'll look at how the company is doing and what Wall Street's outlook is. At the same time, the stock price is below fair value. Is this an interesting opportunity?

Management

Deepak S Nath - CEO

Mr. Nath started his career as a computational physics scientist at Lawrence Livermore National Laboratory. Prior to joining Siemens Healthineers, he held roles at Amgen and McKinsey and spent 10 years at Abbott Laboratories, Inc. culminating in his appointment as President of Abbott Vascular. At Siemens Healthineers (2018-2022), he was President of the Diagnostics Division responsible for $6 billion in revenue and 15,000 employees.

Deepak brings global leadership and risk management expertise and has a track record of growing large healthcare companies through significant improvements in execution and building a strong results-focused culture.

He holds a BSc and MSc in Mechanical Engineering and a PhD in Theoretical Mechanics from the University of California, Berkeley.

If you'd like to know more about the CEO himself, you can check out his personal Linkedinwhere he not only has his entire work history, but also the schools he graduated from. Unfortunately, he hasn't made any posts on this platform yet.

Industry/Specialization of the company

Orthopedics: Smith & Nephew is a leader in orthopedic implants, including hip and knee replacements. Their products are designed to provide lasting and reliable support for patients with orthopedic problems. In addition to joint replacements, the company also offers trauma implants that aid in fracture treatment and reconstructive surgery.

Sports Medicine: In sports medicine, Smith & Nephew focuses on innovative solutions for the treatment of soft tissue injuries such as ligaments and tendons. Their advanced products and techniques help rehabilitate athletes faster and more effectively, allowing them to return to activity quickly.

Endoscopy: $SNN develops and distributes endoscopic instruments and equipment that enable minimally invasive surgical procedures. These technologies help reduce post-operative pain and shorten recovery time for patients, which benefits their quality of life.

Wound care: Smith & Nephew is a pioneer in the field of advanced wound care. They offer a wide range of products, including foam and hydrocolloid dressings that promote faster and more effective healing of acute and chronic wounds. Their technologies also include products for the treatment of burns and pressure ulcers.

Innovation and research: The company places great emphasis on innovation and continuous improvement of its products. Investment in research and development enables Smith & Nephew to bring new and advanced medical technologies to the market. Through its innovative approaches and technologies, the company remains at the forefront of the healthcare industry and continually improves patient care.

Company profitability and cash

The company's stock has mostly sold off in recent months. They are now priced at just under $25. At the beginning of the year, one share was worth more than $26.5. So how will the price fare and where is the company's footing?

The company's market capitalization is $10.76 billion. This is a very low figure compared to the one before the pandemic. It was 109% higher. But the company still employs 19,550 people.

In terms of ownership of the company, only 0.65% of all its shares are held outside the market in private hands. The remaining 433.55 million shares are split between inverters and institutions. Thedebt of $SNN is $3.08 billion. Meanwhile, management has "only" $302 million available in cash.

In 2019, the company's revenue was $5.14 billion. Operating margins were a solid 11.68% at the time. The company's net income was a flat $600 million. A year later, when the pandemic broke, revenue dropped to $4.56 billion. Profit margin slipped to 9.82% and net income fell to $448 million. In the following year ,$SNN's management managed to boost revenues, which increased year-over-year. Their value was $5.231 billion in 2021. Operating margins also grew to 10.05%. Profit was thus $524 million. However, the company hasn't done so well in the last two years. Revenues have held steady or rotated, but operating margins have dropped significantly. In 2022, revenue was $5.22 billion. But the company earned only $223 million on margins of 4.28%. Last year, things were a little better, but they were still very small. Revenue grew to $5.55 billion and profit margin increased to 4.74%. Net profit was $263 million.

$SNN breaks down its revenues by the products they come from into three basic categories. The largest is Orthopedics. This segment brought the company $2.21 billion worth of revenue in 2023 which is 39.9% of their total last year. The Sports Medicine segment was second with 31.16% share and revenues of $1.73 billion. The firm additionally includes nose, throat and ear treatments. The advanced wound care segment came in last place with sales of $1.61 billion. This corresponds to 28.94%.

Earnings per share were $1.65 in 2016. This was 1.07% above analysts' estimates. In the next three years, the company enjoyed very nice EPS growth. In 2017, they hit $1.89 and by 2019 they were $2.04. But by 2020, there was a very significant drop in earnings per share figures. It came in at $1.29. Even after this significant reduction, the company was able to stay above analyst estimates and beat them by 2.21%. However, in 2021, it failed to do so for the first time since 2016 and fell short of the market consensus by 2.14%. The last 2 years have seen rather stagnation in EPS figures. In 2022 it was $1.64 and last year it was $1.66.

Revenue was $4.67 billion in 2016. A year later, they rose to $4.77 billion. In the next two years, the growth gradually increased even more until it got a revenue value of over $5 billion in 2019, $5.14 billion to be exact. However, the next year, due to the pandemic and slowdown in business, the revenues declined. In 2020, they dropped to $4.56 billion. But since then (i.e., for the last three years) they have only increased. Their value continues to grow. In 2023, sales were a record $5.55 billion. By 2027, meanwhile, analysts believe that revenues could reach $6.77 billion.

$SNN'srevenue from each of the company's sectors has been increasing in recent years except for one, the largest. In 2019, the company has proceeded to reshuffle the revenue split by each small segment. Today's 3 main pillars are the result. Orthopedic Devices revenue declined $100 million from 2019 to 2023. But over the same time period, the sports medicine segment grew by $190 million and the advanced wound care segment grew by $230 million. So the company has been on a roll in recent years.

Operating expenses

If we look at the company's expenses, we finally get to why it's not making as much money anymore. Its business increasingly requires investment and more money. As a result, quarterly expenses continue to increase, faster than revenue growth. In 2019, the company needed $2 billion to run one half of the year. In 2021, it was already $2 billion and $360 million. In the second half of last year, the company even spent a record amount. It was $2.67 billion. Management, if it wants to increase profitability and previous values, should do something about it.

Dividend

The company has been paying a dividend since the beginning of the millennium. The first payout in 2000 was $0.148 per share. This value has gradually increased over time, despite the stock going through more than one split.

One was in 2000, at a 9/11 split. In 2003, the stock was split at a 2/1 ratio, and in 2014, it was still split at a 5/2 ratio. The company pays only 2 dividends per year. This year's dividend was $0.452 per share. That's double in the last 2 years.