04-11-2021, 04:36 PM
Smith & Nephew (SNN) - Sports injury/hip-replacement play still over 20% discounted
<!-- SC_OFF --><div class="md"><p>I don't regularly make posts about individual securities...actually this would be my first. I'm tired of daily DD posts on companies that are at ATH, so here's a mini-DD on one that is still heavily discounted from Covid. And of course...this is not investment advice, do your own due diligence.</p> <p>Let's look at where they made their business in 2020:</p> <ul> <li><p>$1.9 billion in revenue in orthopedics: mainly knee implants, hip implants, & trauma devices.</p></li> <li><p>$1.3 billion in sports medicine</p></li> <li><p>$1.3 billion in wound management</p></li> </ul> <p>So we have a company that makes most of their revenue in sports, injuries, and hip/knees. Literally all things that were put on halt due to Covid. As to be expected, 2020 was a terrible year for them, with revenue down 11.2% and EPS down 25%. They also under-performed all their larger peers (i.e. Striker, Zimmer Biomet) whom thanks to more diversified products were not hit as hard.</p> <p>I believe most of their under-performance is due to events that are transitory:</p> <ul> <li><p>Decline in sports injuries due to Covid.</p></li> <li><p>Postponement of knee/hip surgeries due to Covid.</p></li> <li><p>Brexit (they are a UK company)</p></li> <li><p>Inability to effectively run their sales due to Covid & lockdowns.</p></li> </ul> <p>Let's look at some headwinds that I think the market is not factoring in:</p> <ul> <li><p>They have actually increased their R&D budget by nearly 5% during Covid, while most other device companies are tightening.</p></li> <li><p>The UK is planning to increase corporate taxes to 25% in 2023, however they will have a temporary 130% super-deduction for plant/equipment through March 2023. Meanwhile, UK plans no change to their 13% credit on R&D. I believe SNN, a device manufacturer, will be an out-sized beneficent of this change in tax policy.</p></li> <li><p>Potential buyout opportunity from one of the larger device makers.</p></li> </ul> <p>Finally, SNN's debt looks reasonable, and Price/Sales ratio is literally almost at the same spot it was in 2014/2015..a rarity in this market. And their revenue growth has slowly climbed from $3.8 billion in 2008 to $5.1 billion in 2019, only falling down to $4.5 billion in 2020. So 2020 was, other than a small drop in 2012, the only year they had a major decline in revenue.</p> <p>If it's not clear by now I am long SNN. I'm waiting for schools to re-open, sports to come back in full force, and for people to get injured again rather than sit at home in their bubble. It's only a matter of time before people are playing hockey, or recreational soccer.</p> <p><strong>Wrestlemania 37</strong> (WWE) is this weekend and returning with a live audience. One of the marquee matches: Big E vs Apollo Crews in a Nigerian Drum Fight. I don't know exactly what a Nigerian Drum Fight is, but I smell $$$ for the sports-injury device company Smith+Nephew.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/cr0ne"> /u/cr0ne </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/mobmuc/smith_nephew_snn_sports_injuryhipreplacement_play/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/mobmuc/smith_nephew_snn_sports_injuryhipreplacement_play/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>I don't regularly make posts about individual securities...actually this would be my first. I'm tired of daily DD posts on companies that are at ATH, so here's a mini-DD on one that is still heavily discounted from Covid. And of course...this is not investment advice, do your own due diligence.</p> <p>Let's look at where they made their business in 2020:</p> <ul> <li><p>$1.9 billion in revenue in orthopedics: mainly knee implants, hip implants, & trauma devices.</p></li> <li><p>$1.3 billion in sports medicine</p></li> <li><p>$1.3 billion in wound management</p></li> </ul> <p>So we have a company that makes most of their revenue in sports, injuries, and hip/knees. Literally all things that were put on halt due to Covid. As to be expected, 2020 was a terrible year for them, with revenue down 11.2% and EPS down 25%. They also under-performed all their larger peers (i.e. Striker, Zimmer Biomet) whom thanks to more diversified products were not hit as hard.</p> <p>I believe most of their under-performance is due to events that are transitory:</p> <ul> <li><p>Decline in sports injuries due to Covid.</p></li> <li><p>Postponement of knee/hip surgeries due to Covid.</p></li> <li><p>Brexit (they are a UK company)</p></li> <li><p>Inability to effectively run their sales due to Covid & lockdowns.</p></li> </ul> <p>Let's look at some headwinds that I think the market is not factoring in:</p> <ul> <li><p>They have actually increased their R&D budget by nearly 5% during Covid, while most other device companies are tightening.</p></li> <li><p>The UK is planning to increase corporate taxes to 25% in 2023, however they will have a temporary 130% super-deduction for plant/equipment through March 2023. Meanwhile, UK plans no change to their 13% credit on R&D. I believe SNN, a device manufacturer, will be an out-sized beneficent of this change in tax policy.</p></li> <li><p>Potential buyout opportunity from one of the larger device makers.</p></li> </ul> <p>Finally, SNN's debt looks reasonable, and Price/Sales ratio is literally almost at the same spot it was in 2014/2015..a rarity in this market. And their revenue growth has slowly climbed from $3.8 billion in 2008 to $5.1 billion in 2019, only falling down to $4.5 billion in 2020. So 2020 was, other than a small drop in 2012, the only year they had a major decline in revenue.</p> <p>If it's not clear by now I am long SNN. I'm waiting for schools to re-open, sports to come back in full force, and for people to get injured again rather than sit at home in their bubble. It's only a matter of time before people are playing hockey, or recreational soccer.</p> <p><strong>Wrestlemania 37</strong> (WWE) is this weekend and returning with a live audience. One of the marquee matches: Big E vs Apollo Crews in a Nigerian Drum Fight. I don't know exactly what a Nigerian Drum Fight is, but I smell $$$ for the sports-injury device company Smith+Nephew.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/cr0ne"> /u/cr0ne </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/mobmuc/smith_nephew_snn_sports_injuryhipreplacement_play/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/mobmuc/smith_nephew_snn_sports_injuryhipreplacement_play/">[comments]</a></span>Kind Regards R