The healthcare sector proved to be relatively defensive last year as companies were less affected by austerity measures than their pharmaceutical cousins. The sector in the UK is dominated by the fortunes of Smith & Nephew (SN.) and the success of its strategy to diversify its revenues away from a reliance on replacement knees and hips. However, it could be a year for niche service providers to prove their worth as outsourcing gains traction in the pharma industry.
The economic vitality of the US healthcare market is what matters most to Smith & Nephew. Now that it is clear that the Obama Care reforms will not be repealed, healthcare companies can at least look forward to a measure of regulatory stability in terms of reimbursement for Medicare in 2013. However, the problem Smith & Nephew faces, along with the rest of the industry, is that although medical costs are forecast to increase by 7.5 per cent in 2013, in real terms it will be the fourth year of flat growth as price transparency and more demanding regulation put downward pressure on the prices that companies can charge. That said, the improving economy, and a deal on the fiscal cliff, will give patients the confidence to arrange for expensive elective surgery, which is a positive for Smith & Nephew. Overall, the medical devices sector should see sales growth of about 5 per cent in the US, and around 3 per cent globally, according to analysts' estimates.
| COMPANY NAME | LATEST PRICE (p) | MARKET VALUE (£m) | PE RATIO | DIVIDEND YIELD (%) | PERCENTAGE CHANGE IN 2012 | LAST IC VIEW |
| SMITH & NEPHEW | 684 | 6,184 | 14.5 | 1.9 | 8.6 | Sell, 653p, 29 Nov 2012 |
| SYNERGY HEALTH | 1,095 | 639 | 16.6 | 1.7 | 28.9 | Hold, 940p, 13 Nov 2012 |
| UNITED DRUG | 279 | 669 | 13.5 | 2.5 | 63.0 | Buy, 223p, 14 Nov 2012 |
