Smith & Nephew Posts Decent Fourth-Quarter Results and Surprises With CEO Change

The omicron variant weighed on Smith & Nephew’s fourth-quarter results, but full-year performance generally met our expectations on the top and bottom lines, and we’re leaving our fair value estimate unchanged. The typical seasonal strength seen in the fourth quarter failed to materialize thanks to the pandemic, and quarterly revenue was flat year over year in constant currency. Not surprisingly, large joint reconstruction fared worse as those procedures were delayed in hospitals. In contrast, sports medicine, arthroscopy, and ear, nose, and throat procedures, which are generally handled in outpatient settings, held up considerably better. With rising raw material costs and wages putting pressure on the firm, our expectations for 2022 remain on the modest side. We saw little to change our thinking about this midsize firm’s narrow economic moat.