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 #2 (Buy) company have risen 17.8% compared with the industry’s 0.6% growth so far this year. The S&P 500 Index has gained 7.3% in the same time frame.
Stryker, with a market capitalization of $108.85 billion, is one of the world’s largest medical device companies operating in the orthopedic market. It anticipates earnings to improve 9.7% in the next five years. SYK’s earnings yield of 3.5% compares favorably with the industry’s (2.6%) yield.
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What’s Favoring Stryker’s Growth?
Stryker continues to witness strong demand for Mako and a healthy order book, despite financial constraints stemming from 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 robot sales.
SYK is committed to the continued expansion of Mako. Following a soft fourth quarter of 2022, the Mako installations touched a record high during the fourth quarter. The company remains confident about robust growth in Mako revenues in 2023, on the back of new launches and software upgrades.
Stryker is focused on the continued expansion of the robotic surgery platform and is progressing well with it in international markets. The initiatives reflect the demand for Stryker’s differentiated Mako robotic technology.
Additionally, SYK has 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, artificial intelligence for health care and Medical Mechatronics has helped it 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 fourth-quarter earnings 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 remained in certain regions, the company expects this challenge to resolve gradually. This, in turn, will likely lead to higher procedures in 2023.
Per management, the company’s constant support for customers and focus on innovation poise it for growth as the pandemic subsides. In 2022, Stryker’s adjusted R&D expenses were 6.7% of net sales, highlighting its strong commitment to innovation. Per management, this is likely to drive new product launches.
In September, SYK launched its new Spine Guidance Software — Q Guidance System — for spine application. On its fourth-quarter earnings call, the company stated that the Q Guidance system has exceeded management’s expectations.
Moreover, Stryker’s cost-cutting initiatives to improve margins and lessen inflationary pressure look promising. The adjusted SG&A expenses during 2022 were 32.7% of net sales, contracting 90 basis points year over year.
What’s Hurting the Stock?
An unfavorable pricing environment poses a persistent threat to Stryker’s core businesses. On its fourth-quarter 2022 earnings call, the company stated that the quarter’s average selling days were in line with the prior-year period. The impact from pricing was 0.6% in the last reported quarter. Consequently, pricing pressure remains a cause of concern. Unfavorable currency rate fluctuation also hurt the top line, which may continue to impact revenues moderately in the first half of 2023.
Stryker Corporation Price
Stryker Corporation price | Stryker Corporation Quote
The Zacks Consensus Estimate for 2023 earnings per share is pegged at $10.02, indicating year-over-year growth of 7.3%. The consensus mark for 2023 revenues is $19.75 billion, indicating a 7% improvement year over year.
Other Stocks to Consider
Some other top-ranked stocks in the broader medical space are Becton, Dickinson and Company BDX, Henry Schein HSIC and The Cooper Companies COO.
Becton, Dickinson and Company, carrying a Zacks Rank #2 at present, has an estimated long-term growth of 7.8%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 6.47%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
So far this year, BDX’s shares have declined 2.4% against the industry’s 5.6% growth.
Henry Schein, sporting a Zacks Rank #1 at present, has an estimated long-term growth of 18.3%. Its earnings surpassed estimates in three of the trailing four quarters and met the same once, the average surprise being 2.97%.
So far this year, the company’s shares have gained 3.3% compared with the industry’s 5.6% growth.
The Cooper Companies, carrying a Zacks Rank #2 at present, has an estimated long-term growth of 11%. COO’s earnings missed estimates in each of the trailing four quarters, the average negative surprise being 1.82%.
So far this year, the company’s shares have gained 11.9% compared with the industry’s 5.6% growth.
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