Stryker Retained at Neutral - Analyst Blog

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We reaffirm our Neutral recommendation on Stryker Corp. ( SYK ). Its earnings for first-quarter fiscal 2012 were in line with the Zacks Consensus Estimate while its revenues beat the forecast.

Stryker reported first quarter fiscal 2012 adjusted earnings of 99 cents per share, in line with the Zacks Consensus Estimate and surpassing the year-ago earnings of 90 cents per share. Adjusted earnings exclude restructuring expense of $12 million and integration and acquisition-related expense of $17 million, associated with the takeover of Neurovascular, Memometal, Concentric and Orthovita.

Revenues rose 7.2% (up 7.4% in terms of constant currency) year over year to $2,161 million, beating the Zacks Consensus Estimate of $2,115 million. Growth was backed by balanced up ticks across all segments, acquisitions and a diverse portfolio of products.

Stryker is one of the world's largest medical devices companies and we feel that the company should benefit from new product launches, acquisitions and the improving hospital capital spending backdrop. Hips and Knees segment sales showed signs of improvement in the quarter on account of improved mix (especially in the Hips segment) but domestic pricing was in negative territory.

While there was little or no growth in elective procedures, orthopedic volumes were nonetheless stable. However, cash flow generation was low. While Stryker remains challenged by the lumpiness in the reconstructive implant market, its MedSurg as well as Neurotechnology and Spine segments are doing better.

We believe that Stryker is poised for growth powered by new products, acquisitions and recovery in capital spending by hospitals. The company is expanding its product portfolio by acquiring complementary businesses and leveraging a solid balance sheet.

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, despite recent stability, it remains challenged by the lumpiness in the reconstructive implant market while pricing and elective procedure volume are still headwinds. Our long-term Neutral recommendation on Stryker is in agreement with the short-term Zacks #3 Rank (Hold).


 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: JNJ , SNN , SYK , ZMH

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