Smith & Nephew: Operational Challenges Below the Surface Are Likely To Linger

The uptick in U.S. medical utilization provides a favorable backdrop for medical device firms as the rest of 2023 unfolds. However, we think Smith & Nephew may not be able to fully capitalize on these conditions, as it remains hampered by some operational issues. Despite the near-term speedbumps, Smith & Nephew remains a sizable competitor with attractive businesses that should hold their own over the longer run, and we’re holding steady on our fair value estimate. In particular, Smith & Nephew enjoys intangible assets and switching costs that add up to a narrow economic moat. We’ve seen little to change our thinking there.