SNN

We rate SMITH & NEPHEW PLC (SNN) as a Buy with a composite score of 68.9/100 at a current price of $35.98. The stock scores above average across the majority of our six quantitative factors and ranks #126 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in stability (92th percentile) and value (91th percentile), which together account for the majority of the composite score. All factors score above the 40th percentile, indicating no material weakness in the quantitative profile. We assign a Narrow Moat rating (59/100), Low uncertainty, and Exemplary capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

SMITH & NEPHEW PLC holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 68.9/100 places it at rank #126 in our full 7,333-stock universe. With a $10.8B market capitalization, SMITH & NEPHEW PLC operates at meaningful scale within the Manufacturing sector, providing competitive advantages in distribution, procurement, and customer reach.

Revenue is growing at 4%, though momentum at the 52th percentile suggests the market has not yet fully recognized this trajectory. This potential disconnect between fundamental improvement and market recognition could represent an opportunity for patient investors if the growth trend persists.

The margin cascade tells an important story: gross margins of 71% (+28.2pp vs sector) narrow to operating margins of 10% (+8.5pp vs sector) and net margins of 7.2%, yielding a gross-to-net conversion rate of 10%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $35.98, SMITH & NEPHEW PLC appears undervalued relative to its fundamentals. Our value factor score of 91/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at EV/EBITDA of 3.1x (discounted to peers), P/B of 2.9x, P/S of 0.7x. We evaluate these multiples in the context of both absolute levels and sector-relative positioning to form our valuation view.

We assign a Low uncertainty rating to SMITH & NEPHEW PLC. The company exhibits strong financial stability with a beta of 0.47, conservative leverage (0% D/E), and a stability factor in the 92th percentile. The predictable nature of the business model and solid financial position reduce the range of potential outcomes, giving us confidence in our fair value estimate.

Specific risk factors that inform our assessment include: low beta of 0.47 — while defensive, this may indicate limited upside participation in bull markets. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 92th percentile and quality factor at the 86th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: healthy gross margins of 71% provide a buffer against cost pressures; conservative leverage (0% D/E) limits balance sheet risk; above-average stability (92th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate SMITH & NEPHEW PLC's capital allocation as Exemplary. Management demonstrates a strong track record of balancing reinvestment with shareholder returns, evidenced by returns on equity of 31.3%, disciplined leverage (0% D/E), a 3.05% dividend yield. Exemplary allocators typically generate returns on equity above 20% while maintaining debt-to-equity below 50% — SMITH & NEPHEW PLC meets this high bar.

The balance sheet remains conservatively managed, providing financial flexibility for opportunistic investments while maintaining a margin of safety for shareholders. The company returns capital via a 3.05% dividend yield, and the combination of 15.9% return on assets and controlled leverage suggests management is deploying capital at rates well above the cost of capital — the hallmark of exemplary stewardship.

In summary, SMITH & NEPHEW PLC receives a Buy rating with a composite score of 68.9/100 (rank #126 of 7,333). Our quantitative framework assigns a Narrow Moat (59/100, trend: stable), Low uncertainty, and Exemplary capital allocation. The average factor score across quality, value, momentum, stability, and investment is 73/100.

Our analysis supports a constructive view on SMITH & NEPHEW PLC. The combination of identifiable competitive advantages, low uncertainty, and exemplary capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.