Orthopedic major
Stryker Corporation
(
SYK
) is slated to report its first quarter fiscal 2012 results after
the closing bell on Tuesday, April 17. The current Zacks Consensus
Estimate for the first quarter is 99 cents.
Fourth Quarter Flashback
Stryker's fourth-quarter 2011 adjusted earnings per share of
$1.02 matched the Zacks Consensus Estimate and exceeded the
year-ago earnings of 93 cents a share. The Michigan-based
orthopedic devices major's profit (as reported) shot up 35.9% to
$401 million (or $1.05 a share) in the quarter on the heels of
strong revenues.
Revenues spurted roughly 11% year over year to $2,215 million,
essentially in line with the Zacks Consensus Estimate. The healthy
growth was triggered by higher sales across the company's surgical
equipment ("MedSurg") as well as Neurotechnology and Spine
divisions.
Sales from the company's core Reconstructive unit crept up 1.3%
in the quarter (up 0.7% barring the currency exchange translation
impact). Growth in trauma and extremities franchise was, in part,
masked by weak hip and knee business.
Revenues from the MedSurg division spiked 11.2% (up 11.1% in
constant currency) year over year, buoyed by healthy demand for the
company's emergency medical equipment and surgical systems.
Neurotechnology and Spine products sales ballooned roughly 47.3%
(up 46.8% in constant currency).
Estimate Revisions Trend
Agreement
Estimates for the first quarter demonstrate lack of activity
over the past week and month. For the upcoming fiscal year, there
was one case of downward revision in each of the prior 7 and 30
days, with no instance of upward revision.
Magnitude
Given the lack of revisions, the estimate for the upcoming
quarter has been stationary over the last week and month (at 99
cents a share). A similar flat trend applies to the estimate for
fiscal 2012 which stays at $4.11 a share over the corresponding
periods.
With respect to earnings surprises, Stryker has posted two
positive surprises in the preceding four quarters while it met the
Zacks Consensus Estimate on the other two occasions. The company
has produced an average positive earnings surprise of 1.69% over
the last four quarters, implying that it has beaten the Zacks
Consensus Estimate by that measure.
Our View
We believe that Stryker is poised for growth powered by a well
diversified portfolio, new products and acquisitions. The company
is expanding its product range by acquiring complementary
businesses. Stryker was involved in a series of acquisitions in
2011 pressed by sustained pricing and procedure volume pressure in
its core replacement hips and knees businesses.
We expect new products including the hip systems, ADM
Restoration and MDM X3 (Modular Dual Mobility) to favorably impact
Stryker's revenues. The ongoing transition from metal-on-metal
(MoM) hip implants to next-generation hip systems represents a
tailwind for the company. While Stryker's knee franchise is still
struggling, the new OtisMed pre-op surgical cutting guides should
rekindle growth in this business.
Stryker has embarked on several restructuring initiatives
(including headcount reduction) in an effort to boost productivity
and neutralize costs associated with the implementation of the new
government-mandated Medical Device Excise Tax (scheduled in 2013).
Moreover, the company remains committed to delivering incremental
returns to investors leveraging a solid balance sheet, healthy free
cash flow and earnings power.
However, Stryker operates in a highly competitive orthopedic
industry and faces strong competition from players like
Zimmer
(
ZMH
),
Johnson & Johnson
's (
JNJ
) DePuy and
Smith & Nephew
(
SNN
). Moreover, it remains challenged by the sustained lumpiness in
the reconstructive implant market while pricing and elective
procedure volume still pose headwinds.
The reconstructive market fundamentals remain challenging given
a host of macro issues including high unemployment and expiry of
health insurance. We expect the company to provide some color on
the pricing/volume as well as capital spending trend in its first
quarter commentary. Our Neutral recommendation on Stryker is backed
by a short-term Zacks #3 Rank (Hold).
JOHNSON & JOHNS (
JNJ
): Free Stock Analysis Report
SMITH & NEPHEW (
SNN
): Free Stock Analysis Report
STRYKER CORP (
SYK
): Free Stock Analysis Report
ZIMMER HOLDINGS (
ZMH
): Free Stock Analysis Report
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