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Stryker Corporation (SYK): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Posted: 3/14/2014 8:00:00 AM
Referenced Stocks: SYK;IM;BSX;CMF

Stryker Corp reported disappointing fourth-quarter 2014 results, wherein both revenue and EPS lagged the Zacks Consensus Estimate. A strong U.S. dollar continues to impede the company's top line growth. However, we believe that Stryker's acquisition-driven strategy is expected to boost its growth profile by expanding its existing product offerings across all business segments. Also, the expected FDA approval for MAKO total knee in 2015 should lead to meaningful sales contribution in the long term. Growth prospects in China and India are bright, though volatile foreign exchange and pricing remain a major concern in 2015. Moreover, challenging macro economic conditions, particularly the 2.3% medical device excise tax, tight spending environment and tapering of reimbursements are added concerns. As a result, we reiterate our Neutral recommendation on Stryker and set a target price of $97.00.


Headquartered in Kalamazoo, MI, Stryker Corporation (SYK) is one of the world's largest medical device companies operating in the global orthopedic market. The company was founded in 1941 and sells its offerings in more than 100 countries worldwide through company-owned sales subsidiaries and branches as well as third-party dealers and distributors. Stryker currently has three business segments: Reconstructive, MedSurg Equipment, and Neurotechnology and Spine.

Stryker reported total revenues of $9.02 billion in 2013. Total revenues for nine months ended Sep 30, 2014 stood at $7.06 billion, up 7.7% year over year. U.S. revenues grew 9% to $4.74 billion while international revenues scaled 5.1% to $2.32 billion.

The Reconstructive division (43.1% of total revenues in the first nine months of 2014) includes hip, knee, trauma-related products and extremities implant systems. As part of the hip offerings, the company offers a number of products designed to meet the needs of revision hip procedures, including Restoration, Restoration Modular, Trident Acetabular and ADM Mobile Bearing, each of which provides surgeons with the options necessary to address revision surgery challenges. Stryker's knee implant systems include Triathlon, Scorpio, and Global Modular Replacement System (GMRS) systems. The company has several product lines for trauma and extremity implant including Intramedullary (IM) and cephalomedullary nails, locked and non-locked plating, hip fracture solutions, external fixation systems and bone substitutes.

The MedSurg Equipment segment (38.6%) comprises three main divisions: Stryker Instruments (powered surgical tools), Stryker Endoscopy (powered surgical instruments and viewing aids), and Stryker Medical (specialty stretchers).

The new Neurotechnology and Spine division (18.3%) includes the Neurovascular business (Target) acquired from Boston Scientific (BSX), the spinal implant and interventional spine businesses and the Leibinger Unit/Craniomaxillofacial (CMF) unit. The company markets spinal implant products including cervical, thoracolumbar and interbody systems used in spine injury, deformity and degenerative therapies. The neurotechnology offering includes products used for minimally invasive endovascular techniques, as well as a comprehensive line of products for traditional brain and open skull base surgical procedures, orthobiologic and biosurgery products including synthetic bone grafts and vertebral augmentation products, as well as minimally invasive products for the treatment of acute ischemic and hemorrhagic stroke.

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