We recently published a list of 8 Most Undervalued Healthcare Stocks to Buy According to Analysts. In this article, we are going to take a look at where Smith & Nephew plc (NYSE:SNN) stands against other most undervalued healthcare stocks to buy according to analysts.
Rising Healthcare Costs and the Impact of Tariffs on US-China Trade in the Healthcare Sector
Healthcare prices and expenditures have been rising in the United States. Healthcare spending in the United States climbed 7.5% from 2022 to $4.9 trillion in 2023, according to the Centers for Medicare & Medicaid Services. The healthcare sector accounted for 17.6% of the US economy in 2023, up 17.4% from 2022. The two primary drivers of this rise are the expansion of private health insurance and Medicare.
As more and more US companies look to China for deals on the next promising chemical, whether in the obesity or cancer area, the effect of tariffs on this ongoing trend has become a major point of dispute in the healthcare business. On February 7, Carlo Rizzuto, managing director of Versant Ventures, discussed how tariffs affect healthcare on CNBC’s “Fast Money.” According to Rizzuto, tariffs could have two effects on the industry. The first would be goods created in China and released into the US or other markets. To understand how tariffs might affect such trade operations, the industry would need to observe how the tariffs are implemented in the market.
Second, and more specifically, China serves as a major base for contract production and research in the US healthcare sector. Therefore, anything that increases that cost is likely to make the market more challenging. The management of the healthcare industry, which is already under pressure from investors, will not be improved by cost increases.
Impact of China on Healthcare R&D and the Growing Potential of Undervalued Healthcare Stocks
The great majority of healthcare organizations use a Chinese CRO or manufacturing partner in some capacity during the research and development phase, according to Rizzuto, who discussed China’s significant influence in the pharmaceutical and healthcare industries. It, therefore, has a significant impact on how pharmaceutical and biotech businesses operate in the country. This pattern is quite frequent across all sizes of enterprises.
Simply said, healthcare companies are unable to reshore all of their externalized R&D and production to the United States due to the absence of the infrastructure necessary to manage the transfer. As a result, it is difficult to see how such a massive reshoring might take place. The costs to attain this goal can be calculated linearly with the number of tariffs implemented.
McKinsey projects that healthcare EBITDA will increase at a 7% CAGR from a baseline of $676 billion in 2023 to $987 billion in 2028. While growth is expected to be faster in some sectors (such as specialty pharmacy and HST), recovery from post-pandemic lows is expected to promote improvement in several categories. Because they enable payers and providers to function more efficiently in a complex environment, software platforms are vital to the healthcare ecosystem.
Technological innovation (such as generative AI and machine learning) continues to offer opportunities for stakeholders from all sectors by automating processes, promoting data connectivity, and generating actionable insights. Specialty pharmacy revenue is expected to expand significantly because of higher utilization and pipeline extension (as in cancer), according to McKinsey. The increased usage of specialty drugs is contributing to the continued growth of specialty pharmacy profit pools.
Our Methodology
For our methodology, we used a screener to filter healthcare stocks with a forward PE ratio of less than 15 and an analyst upside of over 20%. We then ranked the stocks based on the analyst upside as of March 30th, 2025.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A healthcare professional putting the finishing touches on a patient’s knee implant in an operating theater.
Smith & Nephew Plc (NYSE:SNN)
Price Target Upside: 27%
Smith & Nephew plc (NYSE:SNN) is a global medical technology company specializing in orthopedic reconstruction, sports medicine, and advanced wound care solutions. The company stands out for its commitment to innovation, investing in research and development to create cutting-edge technologies like robotic-assisted surgical systems, advanced biomaterials, and digital health platforms. Recent innovations, such as the CORI Digital Tensioner for knee procedures and advanced hip systems, enhance surgical precision and improve patient outcomes.
Smith & Nephew plc (NYSE:SNN) reported strong Q4 2024 and full-year results, which were fueled by its 12-Point Plan for operational transformation. Its Q4 revenue reached $1.57 billion, reflecting a 7.8% increase, while full-year revenue totaled $5.8 billion, with a 5.3% growth rate. New product launches contributed over 60% to this growth.
The company’s profitability saw significant gains, with operating profit surging 54.6% to $657 million. Trading profit rose by 8.2%, reaching over $1 billion, and trading profit margin increased to 18.1%, up from 17.5% in 2023. Cash flow also improved, with operational cash growing 50.2% to $1.24 billion and free cash flow increasing by 327.1% to $551 million.
Smith & Nephew plc (NYSE:SNN)’s earnings per share (EPS) jumped 56.3% to 47.2 cents, while adjusted EPS rose slightly to 84.3 cents. The company’s strong performance was driven by operational efficiency, better product availability, and successful commercialization, despite challenges like inflation and issues in China.
Looking ahead, the business expects revenue growth of around 5% in 2025, with trading profit margins projected between 19–20%. Continued operational savings are expected to further boost margins beyond 2025.
Overall, SNN ranks 6th on our list of most undervalued healthcare stocks to buy according to analysts. While we acknowledge the potential of healthcare companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SNN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
