We reaffirm our Neutral recommendation on
). 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
However, Stryker operates in a highly competitive orthopedic
industry and faces strong competition from players like
Johnson & Johnson
) DePuy and
Smith & Nephew
). 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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