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Here's Why You Should Hold on to Stryker (SYK) Stock for Now

Zacks Equity Research
·4-min read

Stryker Corporation SYK is well poised for growth backed by robust performing robotic-arm assisted surgery platform — Mako, diversified product portfolio and solid international growth. However, pricing pressure remains a headwind.

Shares of Stryker have gained 5%, against the industry’s decline of 0.2% in a year’s time. Meanwhile, the S&P 500 Index has rallied 10.5% in the same timeframe.

Stryker, with a market capitalization of $77.33 billion, is one of the world’s largest medical device companies operating in the global orthopedic market. It anticipates earnings to improve 9.2% in the next five years. Moreover, it has a trailing four-quarter positive earnings surprise of 3.2%, on average.

Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).




What’s Deterring the Stock?

An unfavorable pricing environment poses a constant threat to Stryker’s core businesses. In fact, pricing in first-quarter 2020 had an impact of 0.4% on the top line. Consequently, pricing pressure continues to weigh on its performance.

What’s Favoring the Stock?

Mako is Stryker’s robotic-arm assisted surgery platform. The company continues to witness strong demand for Mako on the back of its unique features and healthy order book. For 2020, the company’s Mako order book remains solid and is on track with its objective of continued share gains in both hips and knees.

Additionally, Stryker has a diversified product portfolio. Its wide range of products provides the company immunity against any significant sales shortfall during economic turmoil. Its significant exposure in robotics, Artificial Intelligence for health care and Medical Mechatronics has provided the company with a competitive edge in the MedTech space. Stryker’s portfolio includes products like Hip, Knee and Mako robotic-arm assisted surgeries.

Apart from these, Stryker has been one of the earliest adopters of the 3D printing technology. The company’s FDA-approved Tritanium TL Curved Posterior Lumbar Cage is a 3D-printed interbody fusion cage intended for use as an aid in lumbar fixation.

In first-quarter 2020, Stryker’s adjusted R&D expenses were 6.4% of net sales. Per management, this is likely to drive new product launches. In recent times, management confirmed the launch of 1688 camera in the endoscopy line of business.

Further, the company is focusing on international growth. A significant turnaround in the company’s European business on account of effective restructuring measures represents a potential upside.

In first-quarter 2020, the company’s international sales improved 0.8%, year over year to $945 million. Organically, international sales grew 3.3%, driven by favorable performance in Japan, Canada and smaller countries in Europe and emerging markets.

Estimates Trend

For 2020, the Zacks Consensus Estimate for revenues is pegged at $13.63 billion, indicating a decline of 8.4% from the prior-year quarter. The same for earnings stands at $6.21, suggesting a fall of 24.8% from the year-ago reported figure.

Stocks to Consider

Some better-ranked stocks from the broader medical space include Aphria Inc. APHA, HMS Holdings Corp. HMSY and West Pharmaceutical Services, Inc. WST. While Aphria and HMS Holdings carry a Zacks Rank #2 (Buy), West Pharmaceutical sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Aphria has an estimated long-term earnings growth rate of 24.6%.

HMS Holdings has an estimated long-term earnings growth rate of 11%.

West Pharmaceutical has a projected long-term earnings growth rate of 9.2%.

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Stryker Corporation (SYK) : Free Stock Analysis Report
 
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Zacks Investment Research