Stryker Corporation SYK is well poised for growth, backed by a robust robotic arm-assisted surgery platform, Mako, and a diversified product portfolio. However, pricing pressure remains a concern.
Shares of this Zacks Rank #3 (Hold) company have risen 11.5% compared with the industry’s 1.4% growth so far this year. The S&P 500 Index has gained 8.4% in the same time frame.
Stryker, with a market capitalization of $103.25 billion, is one of the world’s largest medical device companies operating in the orthopedic market. It anticipates earnings to improve 9.4% in the next five years. SYK’s earnings yield of 3.7% compares favorably with the industry’s (2.3%).
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What’s Favoring Stryker’s Growth?
Stryker continues to witness strong demand for Mako and a healthy order book amid recovery in procedure-demand following the COVID-19 pandemic. This is due to the platform’s unique and promising features. These developments, in turn, enable the company to sustain the momentum in robotic-treatment sales.
SYK is committed to the continued expansion of Mako, whose installations touched record high during the fourth quarter. It remains confident about robust growth in Mako revenues in 2023, on the back of new launches and software upgrades. The first-quarter results reflected Stryker’s efforts to promote the advanced surgery platform.
The company is focused on continued expansion of Mako and is progressing well with it in international markets. The initiatives reflect the demand for Stryker’s unique arm-assisted robotic technology.
SYK also boasts a diversified product portfolio. The company’s wide range of products protects it against any significant sales shortfall during economic turmoil.
Stryker’s significant exposure to robotics and artificial intelligence for healthcare and Medical Mechatronics have helped it to stay ahead of the curve in the MedTech space. The company’s portfolio includes Mako as well as products for hip and knee surgeries.
On its first-quarterearnings call Stryker stated that procedural volumes continue to recover in most countries after getting adversely affected last year due to COVID-19. Although hospital staffing pressure remains in certain regions, the company expects this problem to resolve gradually. This improvement, in turn, will likely lead to higher procedures in 2023.
Per management, Stryker’s constant support for customers and focus on innovation poise it for growth as the effect of the pandemic subsides. In first-quarter 2023, Stryker’s adjusted research and development expenses were 6.5% of net sales, highlighting its strong commitment to innovation. According to the company, this is likely to drive new product launches.
In September 2022, SYK launched a new Spine Guidance Software — Q Guidance System— for spine application. The Q Guidance system has shown promising launch uptake during the first quarter.
Moreover, Stryker’s cost-cutting initiatives to improve margins and lessen inflationary pressure look promising. The adjusted selling, general and administrative expenses during first-quarter 2023 were 35.6% of net sales, expanding 40 basis points year over year.
What’s Hurting the Stock?
An unfavorable currency rate fluctuation poses a persistent threat to Stryker’s core businesses. Foreign currency had a 2.2% unfavorable impact on sales during the first quarter. The trend is likely to continue in the first half of 2023. The company is also facing inflationary pressure, leading to lower margins.
Estimate Trend
The Zacks Consensus Estimate for 2023 earnings per share is pegged at $10.16, indicating year-over-year growth of 8.8%. The same for revenues is pinned at $19.95 billion, implying a 8.1% improvement year over year.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Merit Medical Systems MMSI, West Pharmaceutical Services WST and Perrigo PRGO, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Merit Medical Systems has an estimated long-term growth rate of 11%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 20.22%.
So far this year, MMSI’s shares have risen 18.9% compared with the industry’s 8.7% growth.
West Pharmaceutical Services has an estimated long-term growth rate of 6.3%. Its earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 13.61%.
So far this year, WST’s shares have gained 49.1% compared with the industry’s 8.7% growth.
Perrigo’s earnings are expected to improve 24.2% in 2023. The strong momentum is likely to continue in 2024 as well. PRGO’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average negative surprise being 0.79%.
The company has lost 1.9% so far this year against the industry’s 4.8% growth.
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Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
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Stryker Corporation (SYK) : Free Stock Analysis Report
Merit Medical Systems, Inc. (MMSI) : Free Stock Analysis Report
Perrigo Company plc (PRGO) : Free Stock Analysis Report
West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report
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