I’ve been looking into Smith & Nephew recently and am considering starting a position at around the current price (\~1113p).
A few things stand out to me. The share price is still well below where it was in 2021, yet the valuation doesn’t look demanding. Forward P/E is around 13x, Price/FCF is roughly 15x, and FCF yield is close to 7%.
They also seem pretty shareholder friendly at the moment. There’s the dividend (about 2.6%) and the new £400m+ buyback, which together adds up to a decent level of capital being returned.
Operationally, things appear to be improving as well. Free cash flow has gone from around £400m to £635m over the last couple of years, margins are moving in the right direction, and leverage has fallen from 3.2x to 1.7x EBITDA.
Management’s new RISE strategy is aiming for 6-7% annual revenue growth and ROIC of 12-13% by 2028, which seems achievable if execution remains solid.
I also noticed that Cevian recently increased its stake to over 12%, which I see as a positive sign.
My main concern is profitability. ROCE still trails a lot of other medtech companies, and operating margins are around 16% compared with roughly 20-25% for many peers. Chinese mass-manufacturing is a risk and there is a $60M tariff cost in 2026.
Am I missing anything obvious here? Is this a value opportunity that’s been overlooked, or is there a good reason the market still isn’t giving it a higher rating?