The UK’s headline index may be going nowhere in today’s trading, but some stocks are running up fast. One of them is the FTSE 100 healthcare company Smith & Nephew (LSE: SN).
The Smith & Nephew share price is up 6.3% this afternoon, making it today’s biggest index gainer, at least for now.
Strong trading statement buoys the Smith & Nephew share price
This jump follows the company’s latest trading statement, as per which its reported revenues rose by 11.5% to $1.3bn in the first quarter (Q1) of 2021. Its double-digit revenue increase has been helped by a currency impact, but even without it, the company’s underlying revenues grew by 6.2%.
Orthopaedics slows down growth
Smith & Nephew’s operations are divided into three parts, which are orthopaedics, sports medicine & ENT, and advanced wound management.
Orthopaedics is its biggest revenue generator, with a 43% share in total. Under this segment, it provides the necessary implants required for elective surgeries like knee and hip replacements. The company’s revenues softened last year as these operations were deferred during the pandemic.
Even now, its knee implants’ segment, which in turn is the biggest revenue generator within orthopaedics, is still weak. It shrank by 10.3% as per the latest numbers, dragging down overall orthopaedics growth to 1.6%.
The company says that this is due to reprioritisation towards hip implants, which are more urgent. I think this suggests that we can expect a pick up in knee implants as the pandemic recedes, which is a positive for Smith & Nephew.
Both its sports medicine and advanced wound management segments have grown by a robust 10.3% and 9.3% respectively, on an underlying basis.
Robust outlook
Smith & Nephew’s outlook is even more robust than its Q1 performance. On an underlying basis, it expects revenue to grow by 10% to 13% in 2021. This means that, conceivably, revenue could be double that seen in Q1. Further, on a reported basis, it expects an increase of 14.8% to 17.8%.
Smith & Nephew’s biggest market is the US, accounting for around half its revenues. Growth is really back with a bang in this economy. Fast progress is likely over the rest of 2021 as well. With vaccinations underway at speed, I think the company is poised to make gains from the market.
The flip-side
The flip-side is that the pandemic is not truly over. New variants are causing fresh havoc. And Smith & Nephew is a unique healthcare provider, which does not have the quality of other defensive shares because it caters to a relatively non-urgent category of healthcare requirements. In comparison, pharmaceutical companies like AstraZeneca focus on severe diseases like cancer. As a result, it does not meet the criteria of a safe stock during economic slowdowns.
My takeaway
Other than this, though I think the Smith & Nephew share does not have many other challenges I can see at present. With continued share price weakness since the market crash of 2020, it is a buy for me.
