Canaccord raises Smith & Nephew stock target to $28; keeps hold rating

On Thursday, Canaccord Genuity adjusted its price target for Smith & Nephew (NYSE:SNN), a medical equipment manufacturing company, increasing it to $28.00 from the previous $27.00. The firm maintained its Hold rating on the stock. Smith & Nephew reported a solid first quarter, slightly surpassing consensus expectations and reaffirming its financial guidance for the year.

The company experienced similar low single-digit growth across its product segments. This growth was influenced by challenges in China, which the company believes have reached their peak, and by one fewer selling day, both of which were expected factors. Smith & Nephew’s U.S. Orthopedics recovery continued, with knee and hip sales showing growth rates consistent with the fourth quarter after adjusting for selling days.

Smith & Nephew also maintained its forecast to reach market growth rates in U.S. Reconstruction by the fourth quarter of 2025. In comparison to Johnson & Johnson (NYSE:JNJ), the only other Orthopedics company that has reported so far, Smith & Nephew showed better performance in U.S. knees and hips. The market is awaiting further reports from Stryker (NYSE:SYK) and Zimmer Biomet, which are due to release their figures tomorrow and Monday, respectively.

The company has made changes to how it reports CORI consumables, now including them in their respective business units for better comparability with competitors. This adjustment comes as the Other Reconstruction segment reported a significant 46.6% underlying growth due to strong capital orders.

Despite the belief that the difficulties in China have peaked, the region is expected to continue posing challenges in Orthopedics and Sports Medicine until mid-year. Smith & Nephew anticipates that Orthopedic inventory levels in China should normalize and the impact from the volume-based procurement in Sports Medicine should level off by then. However, the company expects the Advanced Endoscopy Techniques volume-based procurement to create headwinds in the second half of the year.

Smith & Nephew reiterated its full-year 2025 guidance, forecasting approximately 5% revenue growth and a trading margin between 19% and 20%, with stronger expansion anticipated in the second half of the year. The company also addressed potential U.S. tariff impacts, predicting a $15 to $20 million headwind but believes its current guidance, along with mitigation efforts, can absorb these impacts.

The firm acknowledged the positive direction of the U.S. Orthopedics performance but emphasized that the segment’s return to market growth by year-end is still uncertain, and challenges in China persist across multiple business areas. Canaccord Genuity expressed optimism about Smith & Nephew’s innovation, especially regarding CORI, but is awaiting further macroeconomic and operational improvements before reconsidering the Hold rating.

In other recent news, Smith+Nephew reported a positive start to 2025 with first-quarter revenue of $1,407 million, marking a 1.6% increase from the previous year. The company maintained its full-year guidance, expecting around 5% underlying revenue growth and a trading profit margin expansion to between 19.0% and 20.0%. Meanwhile, HSBC downgraded Smith+Nephew’s stock from Buy to Hold, citing ongoing challenges in the US knees and hips market despite optimism around the company’s new 12-point program. Similarly, UBS shifted its stock rating to Neutral from Buy, adjusting the price target to GBP1.25, due to a cautious outlook on the company’s valuation and projected earnings. Smith+Nephew’s 2024 performance showed strong growth, with revenue increasing to $5,810 million and trading profit growing by 8.2%. The company’s 12-Point Plan has been credited for these improvements, with a focus on fixing Orthopaedics and accelerating growth in other segments. Smith+Nephew plans to release its first-quarter trading report for 2025 on April 30, followed by a conference call for financial analysts.

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