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.