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Smith & Nephew plc (GB:SN)
LSE:SN
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Smith & Nephew
(LSE:SN)
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Rating:70Outperform
Price Target:
1,366.00p
▲(4.04% Upside)
Action:ReiteratedDate:11/07/25
Smith & Nephew's strong financial performance and positive earnings call sentiment are offset by technical indicators suggesting bearish momentum and a high valuation. While the company shows robust growth and operational efficiency, valuation concerns and market challenges, particularly in emerging markets and tariff uncertainties, weigh on the overall score.
Positive Factors
Revenue Growth
The consistent revenue growth indicates strong market demand and effective business strategies, supporting long-term financial stability.
Cash Flow Management
Robust cash flow management enhances financial flexibility, enabling strategic investments and shareholder returns through buybacks.
Product Innovation
New product launches like the CENTRIO PRP System strengthen the product portfolio and drive competitive advantage in wound care.
Negative Factors
Emerging Markets Challenges
Performance issues in emerging markets, particularly China, can hinder growth prospects and market expansion efforts.
Tariff Uncertainty
Tariff uncertainties create cost pressures and potential disruptions, impacting profitability and strategic planning.
Reimbursement Headwinds
Changes in reimbursement policies can adversely affect sales and profitability, particularly in the Advanced Wound Management segment.
Smith & Nephew (SN) vs. iShares MSCI United Kingdom ETF (EWC)
Market Cap
£11.15B
Dividend Yield2.35%
Average Volume (3M)3.93M
Price to Earnings (P/E)31.6
Beta (1Y)0.97
Revenue Growth2.51%
EPS Growth56.56%
CountryUK
Employees17,349
SectorHealthcare
Sector Strength45
IndustryMedical - Devices
Share Statistics
EPS (TTM)0.44
Shares Outstanding849,889,300
10 Day Avg. Volume2,834,900
30 Day Avg. Volume3,927,868
Financial Highlights & Ratios
PEG Ratio0.50
Price to Book (P/B)2.07
Price to Sales (P/S)1.87
P/FCF Ratio17.94
Enterprise Value/Market CapN/A
Enterprise Value/RevenueN/A
Enterprise Value/Gross ProfitN/A
Enterprise Value/EbitdaN/A
Forecast
1Y Price Target
£1,492.71Price Target Upside13.69% Upside
Rating ConsensusModerate Buy
Number of Analyst Covering7
EPS Forecast (FY)1.12
Revenue Forecast (FY)£6.49B
Smith & Nephew Business Overview & Revenue Model
Company DescriptionSmith & Nephew plc, together with its subsidiaries, develops, manufactures, markets, and sells medical devices worldwide. The company offers knee implant products for knee replacement procedures; hip implants for the reconstruction of hip joints; and trauma and extremities products that include internal and external devices used in the stabilization of severe fractures and deformity correction procedures. It also provides sports medicine joint repair products for surgeons, including instruments, technologies, and implants necessary to perform minimally invasive surgery of the joints, such as the repair of soft tissue injuries and degenerative conditions of the knee, hip, and shoulder, as well as meniscal repair systems. In addition, the company offers arthroscopic enabling technologies comprising fluid management equipment for surgical access, high-definition cameras, digital image capture, scopes, light sources, and monitors to assist with visualization inside the joints, radio frequency, electromechanical and mechanical tissue resection devices, and hand instruments for removing damaged tissue; and ear, nose, and throat solutions. Further, it provides advanced wound care products for the treatment and prevention of acute and chronic wounds, which comprise leg, diabetic and pressure ulcers, burns, and post-operative wounds; advanced wound bioactives, including biologics and other bioactive technologies for debridement and dermal repair/regeneration, as well as regenerative medicine products including skin, bone graft, and articular cartilage substitutes; and advanced wound devices, such as traditional and single-use negative pressure wound therapy, and hydrosurgery systems. It primarily serves the healthcare providers. Smith & Nephew plc was founded in 1856 and is headquartered in Watford, the United Kingdom.
How the Company Makes MoneySmith & Nephew generates revenue through the sale of medical devices and related services across its three main sectors. The company earns money primarily from the sale of advanced wound care products, orthopedic implants, and sports medicine solutions. Key revenue streams include direct product sales to hospitals, surgical facilities, and healthcare providers, as well as partnerships with distributors and medical professionals. Significant contracts with healthcare systems and innovative product launches also contribute to the company's earnings. Additionally, Smith & Nephew invests in research and development to create new technologies and improve existing products, which helps maintain a competitive edge and drives long-term growth.
Smith & Nephew Earnings Call Summary
Earnings Call Date:Mar 02, 2026
(Q4-2025)
| % Change Since: |
Next Earnings Date:Jul 30, 2026
Earnings Call Sentiment Positive
The call presented a largely positive operational and financial update: the company delivered mid-single-digit organic growth, 160 bps of margin expansion, strong free cash flow (+52.5% to $840m), record CORI placements and broad-based product-driven growth with over 60% of growth from recent launches. Management also set constructive 2026 guidance (≈6% organic revenue growth and ≈8% trading profit growth) and reiterated multi-year RISE targets. Notable near-term challenges include China VBP impacts (now smaller but still affecting profit), CMS-driven reimbursement changes for skin substitutes with an estimated $20m–$40m profit headwind, a $159m inventory write-down from portfolio rationalization, higher tariffs (~$60m impact), and expected modest dilution from the Integrity acquisition in 2026. Overall, positives around cash generation, margin expansion, product adoption and disciplined cost savings materially outweigh the manageable and disclosed headwinds.Q4-2025 Updates
Positive Updates
Full-Year Revenue Growth and Broad-Based Unit Growth
Fiscal 2025 underlying revenue growth of 5.3% (reported +6.1%); all three business units grew >5% (Orthopaedics +5.1% underlying, Sports Medicine & ENT +5.2% underlying, Advanced Wound Management +5.6% underlying). Excluding China, underlying group growth would have been ~7%.
Strong Q4 Performance and Regional Growth
Q4 revenue of $1.7 billion with 6.2% underlying growth (reported +8.3% including a 210 bps FX tailwind). Average daily sales growth of 4.5%. Regional Q4 growth: U.S. +5.6%, other established markets +7.2%, emerging markets +6.4%.
Margin Expansion and Profitability
Trading profit expanded by 160 basis points to a 19.7% trading margin in 2025, driven by operating leverage and cost-savings programs; gross margin improved to 70.9% (+60 bps). Adjusted EPS grew 21% to $1.02.
Record Cash Generation and Capital Returns
Free cash flow of $840 million, up 52.5% year-on-year and well ahead of prior guidance (> $600m). Completed a $500 million share buyback in H2 2025 and proposed full-year dividend increase of 4.3% to $0.391 per share.
Orthopaedics Momentum and CORI Adoption
Orthopaedics delivered 7.9% underlying Q4 growth (strongest quarterly growth in >2 years). Record global CORI placements, with CORI deployment linked to 850 bps higher Knee growth in established accounts and 45% of CORIs placed in ASCs in the quarter.
Innovation-Led Growth
Over 60% of 2025 growth came from products launched within the last five years. Innovations delivered double-digit growth (examples: Q-FIX, REGENETEN, FASTSEAL, LEGION CONCELOC, CATALYSTEM, EVOS, AETOS, PICO, LEAF). Plan to launch 16 new products in 2026.
Product & Segment Milestones
Joint Repair surpassed $1 billion in revenue for the first time (driven by REGENETEN and Q-FIX KNOTLESS). Advanced wound devices (PICO, LEAF) and ALLEVYN COMPLETE CARE early traction noted.
Efficiency, Inventory and ROIC Improvements
Cumulative efficiency savings of $280 million achieved to end-2025 with $150 million targeted in 2026. Day Sales Inventory (DSI) reduced by 21 days excluding portfolio rationalization (51 days including rationalization). ROIC rose to 8.3% (9.9% excluding portfolio rationalization). Net leverage at 1.7x adjusted net debt/EBITDA.
Negative Updates
China VBP Headwinds
China Volume-Based Procurement (VBP) created a headwind that peaked at ~170 basis points in 2025; China represented just over 2% of group sales and will remain a modest headwind to profit in 2026 (company expects a $15m–$20m reduction in China profit for 2026).
Skin Substitutes Reimbursement Impact
CMS reimbursement changes for skin substitutes (physician office and mobile channels) led to market disruption. Management expects a ~15%–20% reduction in revenues for its skin-substitutes portfolio, translating to an estimated $20m–$40m incremental hit to trading profit in 2026.
Inventory/Portfolio Rationalization Write-Down
A $159 million inventory write-down recorded related to portfolio rationalization (circa two-thirds reduction in Ortho SKU count and ~10% Sports SKU reduction). While intended to simplify the portfolio, it was a material one-off charge.
Extraordinary Headwinds in 2026
Company expects several extraordinary headwinds in 2026 including increased tariffs (~$60m vs $17m in 2025), inventory revaluation, and reimbursement changes in U.S. AWM and ENT VBP in China that will pressure near-term profit.
Bioactives Softness and Prior-Base Effects
Bioactives declined 0.5% in Q4 as the business lapped a strong GRAFIX Plus launch in Q4 2024 and saw slowdown in skin substitute volumes in physician office/outpatient settings ahead of CMS changes.
Near-Term Knee Performance Variability
U.S. Knee performance has been inconsistent; company flagged a softer Q1 2026 and deliberate trade-offs between growth, profit and asset efficiency while ramping Landmark (aiming to build to market growth by Q4).
Acquisition Dilution and Integration Costs
Acquisition of Integrity Orthopaedics is expected to be marginally dilutive to trading profit in 2026, broadly neutral in 2027 and accretive from 2028. Acquisition & integration costs remain (2025: $32.7m vs $94m in 2024).
Temporary Restructuring and Site Closures
Restructuring charges fell to $47m (from $123m in 2024) but additional temporary increases in restructuring are expected in 2026 due to manufacturing network optimizations (Warwick closure, Hull wind-down, new Melton facility build).
Company Guidance
Guidance for 2026 reiterated organic revenue growth of around 6% and trading profit growth of about 8% (organic), with trading profit expected to be around $1.3 billion including the Integrity Orthopaedics acquisition (consideration up to $450m; dilutive in 2026, broadly neutral in 2027 and accretive in 2028). Free cash flow is guided to be about $800 million (versus $840m in 2025), ROIC >10% excluding Integrity, and the business targets ~$150 million of savings in 2026 (half from the 12‑Point Plan/ZBB and half from other opportunities). Known headwinds for 2026 include ~$60 million of tariffs, $20–40 million incremental impact from wound reimbursement changes, and a $15–20 million profit hit from China VBP; management expects profit growth to be weighted to the second half (H1 revenue ~4.5–5% and H2 ~7.5–8%; H1 profit growth ~5.5–6% and H2 ~9–10%). Mid‑term RISE targets reiterated: organic revenue CAGR 6–7%, trading profit CAGR 9–10%, >$1 billion FCF in 2028 and 12–13% ROIC.Smith & Nephew Financial Statement Overview
Summary
Smith & Nephew exhibits strong financial health with consistent revenue growth and profitability improvements. The company efficiently manages its operating costs and debt levels, leading to enhanced net income and shareholder returns. Cash flows are robust, providing a solid foundation for future investments. However, there is room for improvement in optimizing capital expenditures and leveraging assets more effectively.Income Statement
The company's revenue has shown a consistent growth, rising 4.7% from 2023 to 2024. Gross profit margin remains strong at 69.6% in 2024, indicating effective cost management. Net profit margin improved from 4.7% in 2023 to 7.1% in 2024, showcasing enhanced profitability. EBIT and EBITDA margins also improved, reflecting operational efficiency. However, the growth rate could be higher compared to peers in the industry.85
Very Positive
Balance Sheet
Smith & Nephew's debt-to-equity ratio stands at 0.63, indicating moderate leverage and effective use of debt. Return on equity increased to 7.8% in 2024, revealing improved shareholder value generation. The equity ratio is stable, although slightly lower than ideal industry standards, indicating room for improvement in reducing liabilities relative to assets.78
Positive
Cash Flow
The company demonstrated strong cash flow management with operating cash flow exceeding net income, suggesting effective cash generation from operations. Free cash flow grew significantly by 234.8% from 2023 to 2024. Both operating and free cash flow to net income ratios are favorable, indicating robust cash flow relative to profitability. However, the high capital expenditures could impact future free cash flow growth.80
Positive
| Breakdown | TTM | Dec 2024 | Dec 2023 | Dec 2022 | Dec 2021 | Dec 2020 |
|---|---|---|---|---|---|---|
Income Statement | ||||||
| Total Revenue | 5.97B | 5.81B | 5.55B | 5.21B | 5.21B | 4.56B |
| Gross Profit | 4.18B | 4.05B | 3.82B | 3.67B | 3.67B | 3.16B |
| EBITDA | 1.44B | 1.24B | 956.00M | 874.00M | 1.24B | 866.00M |
| Net Income | 493.64M | 412.00M | 263.00M | 223.00M | 524.00M | 448.00M |
Balance Sheet | ||||||
| Total Assets | 10.68B | 10.35B | 9.99B | 9.97B | 10.92B | 11.01B |
| Cash, Cash Equivalents and Short-Term Investments | 675.41M | 619.00M | 302.00M | 350.00M | 1.29B | 1.76B |
| Total Debt | 3.45B | 3.32B | 3.08B | 2.87B | 3.34B | 3.69B |
| Total Liabilities | 5.15B | 5.09B | 4.77B | 4.71B | 5.35B | 5.73B |
| Stockholders Equity | 5.53B | 5.26B | 5.22B | 5.26B | 5.57B | 5.28B |
Cash Flow | ||||||
| Free Cash Flow | 799.32M | 606.00M | 181.00M | 110.00M | 469.00M | 492.00M |
| Operating Cash Flow | 1.15B | 987.00M | 608.00M | 468.00M | 877.00M | 935.00M |
| Investing Cash Flow | -345.22M | -569.00M | -448.00M | -472.00M | -691.00M | -606.00M |
| Financing Cash Flow | -676.96M | -86.00M | -200.00M | -926.00M | -645.00M | 1.16B |
Smith & Nephew Technical Analysis
Positive
1313.00
Price Trends
1262.11
Positive
1279.05
Positive
1247.32
Positive
Market Momentum
27.87
Negative
70.31
Negative
95.74
Negative
Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For GB:SN, the sentiment is Positive. The current price of 1313 is above the 20-day moving average (MA) of 1308.55, above the 50-day MA of 1262.11, and above the 200-day MA of 1247.32, indicating a bullish trend. The MACD of 27.87 indicates Negative momentum. The RSI at 70.31 is Negative, neither overbought nor oversold. The STOCH value of 95.74 is Negative, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for GB:SN.
Smith & Nephew Peers Comparison
UnderperformOutperform
Sector (51)
Name | Overall Rating | Market Cap | P/E Ratio | ROE | Dividend Yield | Revenue Growth | EPS Growth |
|---|---|---|---|---|---|---|---|
70 Outperform | £11.15B | 31.58 | 9.30% | 2.35% | 2.51% | 56.56% | |
69 Neutral | £456.58M | 50.47 | 3.66% | 1.25% | 68.03% | -18.27% | |
67 Neutral | £4.80B | 39.09 | 12.73% | 2.11% | 4.18% | 37.65% | |
59 Neutral | £2.75B | 9.50 | 15.66% | 4.16% | 3.73% | 27.13% | |
55 Neutral | £300.81M | 8.71 | 15.04% | ― | 1231.50% | ― | |
55 Neutral | £791.87M | 44.13 | 2.51% | 1.37% | 6.95% | -34.38% | |
51 Neutral | $7.86B | -0.30 | -43.30% | 2.27% | 22.53% | -2.21% |
* Healthcare Sector Average
GB:SN
Smith & Nephew
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Glossary
BuyA stock rated as a "Buy" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock is likely to deliver higher returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
HoldA stock rated as a "Hold" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly compelling nor unfavorable for investment. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
SellA stock rated as a "Sell" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests the stock may deliver lower returns compared to other stocks in the same sector or market index. Note: This is not investment advice; please consult a financial advisor before making investment decisions.
Disclaimer
This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.