Today (30 April) is turning out to be a good day for shareholders of Smith & Nephew (LSE: SN.) As I write, the share price has risen 7% to 1,065p, making it the FTSE 100‘s top gainer.
Unfortunately, this jump isn’t enough to make up for the disappointing performance over recent years. The healthcare stock remains 29% lower than it was in April 2020, and the same price it traded at a decade ago.
But what caused today’s jump? And does the stock look attractive?
Maintained outlook
For those unfamiliar, Smith & Nephew is a medical products maker that specialises in advanced wound management, orthopaedics, and sports medicine. It develops prosthetics and implants, wound dressings, and various surgical devices used in hospitals worldwide.
In other words, Smith & Nephew is in the business of restoring people’s bodies.
The company just released its Q1 results, which is the catalyst for today’s share price rise. Underlying revenue increased 3.1% year on year to $1.4bn, driven by operational improvements and recent product launches. Reported revenue growth was lower, at 1.6%, due to adverse foreign exchange moves.
This growth was achieved despite continued weakness in China, which makes the results look solid. Even better, CEO Deepak Nath said that problems in China have “now passed their peak impact“. Excluding China, underlying revenue growth was 5.5%.
The chief executive added: “Whilst uncertainties exist around the imposition of tariffs, we remain confident in our outlook for another year of strong revenue growth and a significant step-up in trading profit margin.”
This reiteration of full-year guidance has likely boosted the share price. Smith & Nephew expects underlying revenue growth to be around 5%, with a trading profit margin in the 19%-20% range. That would equal around $6.1bn in revenue.
Tariffs update
However, US tariffs are causing supply chain headaches, as they are for most firms. Just over half of the company’s revenue is from the US, with two-thirds of products made there. The other manufacturing sites are in the UK, Costa Rica, Malaysia, China, and Switzerland.
While it’s working to mitigate the impact of US tariffs, management still expects a $15m-$20m hit in 2025. So this situation is an ongoing risk, as we don’t know what tariff policies will look like in a year’s time.
Looking ahead, the firm’s costs might rise as it adjusts its manufacturing base. Its wound division has a manufacturing site in China, for instance.
Cheap valuation
Smith & Nephew is not a high-growth company, with single-digit revenue growth generally the norm. But earnings are rising faster and it’s a diversified business with a global presence.
The stock is trading at just 13 times forecast earnings for 2025, falling to 11.5 in 2026, while offering a near-3% dividend yield. Based on this, I think it offers solid value, especially if there’s a recovery in China, which has a large and growing healthcare market.
Looking further ahead, the global population of people aged 60 years and over will reach 2.1bn by 2050 (or 26% of the planet), according to the UN Department of Economic and Social Affairs. This is more than double the number in 2024!
Therefore, demand for implants and surgical devices should surge long term. I think the stock is worth considering as a cheap play on the global ageing mega-trend.
