Smith & Nephew is an undervalued stock, this investor says

Lorne Steinberg Wealth Management senior vice-president Martin Cobb says Smith & Nephew (Smith & Nephew Stock Quote, Chart, News, Analysts, Financials NYSE:SNN) looks undervalued relative to its medical device peers.

Speaking on BNN Bloomberg’s Market Call on Sept. 17, Cobb talked about Smith & Nephew, a medical device company with businesses in orthopedics, advanced wound care and sports medicine.

The company competes with Stryker, Zimmer Biomet and Johnson & Johnson’s DePuy division.

Cobb said the broader medical device sector has derated despite long-term secular growth of about 3% to 5%.

He noted that mith & Nephew trades at about 12 to 13 times prospective earnings, below larger peers such as Stryker.

Cobb also pointed to a new activist investor, which he described as more constructive and long-term oriented than some North American activists.

The investor said possible value-creation options could include separating parts of the business.

Cobb also cited the potential sale of DePuy to Apollo, saying the valuation implied by that deal would suggest upside for Smith & Nephew.

“Even on an organic basis, they should be more highly valued than they are today,” Cobb said.

Of the analysts covering Smith & Nephew, none rate it “Buy,” six rate it “Hold” and none rate it “Sell,” with a consensus target of US$31.61.

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