We recently compiled a list of the 12 Best Healthcare Stocks to Buy According to Analysts. In this article, we are going to take a look at where Summit Therapeutics Inc. (NASDAQ:SMMT) stands against the other healthcare stocks.
McKinsey reported that, since 2019, the US healthcare industry witnessed significant financial pressure. This is evidenced by the fact that industry EBITDA as a proportion of the National Health Expenditure has declined by an estimated 150 bps (basis points). This fall has impacted payers and providers. Notably, the payers’ estimated margins in 2024 might be at their lowest levels in a decade. While providers have been facing labor shortages, the inflationary pressures have not yet been fully absorbed in the broader healthcare system.
Amidst these past trends, what does the future hold?
What Lies Ahead for the US Healthcare Industry?
McKinsey believes that the healthcare players need to consider potential policy and regulatory changes that can take place in the coming years due to the 2025 change in federal government administration. Furthermore, the industry continues to undergo a shift in growth dynamics. Health services and technology (HST) revenue pools are projected to increase at an 8% CAGR from 2023 to 2028, courtesy of the double-digit growth in software platforms and advanced data and analytics via sales of innovative technologies (such as generative AI) to providers and payers.
Furthermore, pharmacy services can see continued growth, mainly those having a focus on specialty pharmacy. Growth is expected to be fueled by increased utilization and new therapy launches, says McKinsey. Notably, specialty pharmacy revenue is projected to rise at an 8% CAGR from 2023 to 2028, boosting EBITDA for specialty pharmacies and managed service providers.
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Growth Drivers in the Healthcare Industry
McKinsey estimates that healthcare EBITDA is expected to increase by 7% CAGR to $987 billion in 2028 from a baseline of $676 billion in 2023. In many segments, the improvement is expected to be backed by recovery from post-pandemic lows, while in other areas (such as HST and specialty pharmacy), growth is projected to be faster. Software platforms have a key role in the healthcare ecosystem, allowing providers and payers to be more efficient in a complex environment.
Technological innovation (such as generative AI and machine learning) continues to create opportunities for stakeholders throughout segments via automating workflows, promoting data connectivity, and generating actionable insights. McKinsey further added that specialty pharmacy revenue is expected to experience rapid growth because of higher utilization and pipeline expansion (such as in oncology). The increased use of specialty drugs continues to expand specialty pharmacy profit pools.
Our Methodology
To list the 12 Best Healthcare Stocks to Buy According to Analysts, we used a screener and filtered out the companies catering to the healthcare sector. Next, we chose the stocks that analysts saw the most upside to. Finally, the stocks were arranged in ascending order of their average upside potential, as of February 4. We also mentioned hedge fund sentiments around each stock, as of Q3 2024.
At Insider Monkey we are obsessed with 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A laboratory employee in a sterile environment inspecting a microscope focused on a Clostridioides difficile infection sample.
Summit Therapeutics Inc. (NASDAQ:SMMT)
Number of Hedge Fund Holders: 21
Average Upside Potential: 52.7%
Summit Therapeutics Inc. (NASDAQ:SMMT) is a biopharmaceutical company, that focuses on the discovery, development, and commercialization of patient, physician, caregiver, and societal-friendly medicinal therapies. Analyst Mitchell Kapoor of H.C. Wainwright reiterated a “Buy” rating on the company’s shares, which stems from several factors revolving around the strong outlook of the company’s key drug candidate, ivonescimab. Elsewhere, Truist initiated coverage of Summit Therapeutics Inc. (NASDAQ:SMMT)’s stock, offering a “Buy” rating and a price target of $35.
As per Truist’s analyst, ivonescimab remains the most clinically advanced asset in a novel class of drugs, which can surpass the most successful drug class in oncology. While lung cancer demonstrates a strong market opportunity, the total addressable market for ivonescimab is much broader. Furthermore, Truist analyst Asthika Goonewardene predicts that ivonescimab might be available in the US and Europe in early 2026.
Additionally, the analyst believes that ivonescimab can garner annual sales in the double-digit billions. Summit Therapeutics Inc. (NASDAQ:SMMT)’s aggregate cash and cash equivalents and short-term investments came in at ~$487 million and $186.2 million at September 30, 2024 and December 31, 2023, respectively. In September 2024, Summit Therapeutics Inc. (NASDAQ:SMMT) also closed a private financing of $235 million with multiple leading biotech institutional investors and insiders, strengthening its cash balance to extend the runway.
Overall SMMT ranks 10th on our list of the best healthcare stocks to buy according to analysts. While we acknowledge the potential of SMMT as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SMMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.