Stryker (SYK) to Report Q3 Earnings: What's in the Cards?

Stryker Corporation SYK is scheduled to release third-quarter 2020 results on Oct 29, after the closing bell. In the last reported quarter, the company delivered earnings surprise of 3.2%. Further, it beat estimates in each of the trailing four quarters, the average surprise being 3.3%.

Q3 Estimates

The Zacks Consensus Estimate for third-quarter earnings per share is pegged at $1.39, indicating a decline of 27.2% from the year-ago quarter.

The same for revenues stands at $3.39 billion, suggesting a fall of 5.4% from the prior-year quarter.

Factors to Note

Stryker’s MedSurg segment comprises surgical instruments plus endoscopic and emergency medical equipment. It has three subsegments — Endoscopy, Instruments and Medical. Unlike first-quarter 2020, which had witnessed partial impact of the COVID-19 pandemic, the second quarter bore the brunt of it. This resulted in the deferral of elective and non-critical procedures. Although there has been a slow resumption of elective procedures, the resurgence in cases in several regions of the United States might lead to a pause in the same.

Consequently, impact of the pandemic is likely to have weighed on the aforementioned subsegments, which in turn might get reflected on MedSurg unit’s third-quarter results. In fact, the Zacks Consensus Estimate for the segment’s third-quarter revenues stands at $1.49 billion, suggesting a decline of 5.6% from the year-ago reported figure.

Stryker Corporation Price and EPS Surprise

Stryker Corporation Price and EPS Surprise

Stryker Corporation price-eps-surprise | Stryker Corporation Quote

Weak performing Knee and Hips sub segment is likely to have weighed on the company’s Orthopaedic segment in the third quarter. In fact, the consensus mark for the segment’s second-quarter revenues stands at $1.16 billion, indicating a fall of 7.8% prior-year quarter.

With respect to Neurotechnology & Spine segment, slowdown in procedures in all the neurotech product lines might have impacted the segment’s to-be-reported quarter’s performance. The Zacks Consensus Estimate for the segment’s third-quarter sales stands at $706 million, suggesting a decline of 5.7% from the year-ago quarter.

Nonetheless, the company continues to witness strong demand for Mako on the back of its unique features and healthy order book despite financial constraints stemming from the COVID-19 pandemic. In fact, in second-quarter 2020, the company saw a promising number of Mako installations in the United States. Moreover, the company has been witnessing an increase in percentage of both hip and knee replacement surgeries that are being performed with a Mako robot. Consequently, this trend might have favorably impacted the third-quarter performance.

During fourth-quarter 2019, the company acquired Mobius Imaging — a leader in point-of-care imaging technology — and its sister company Cardan Robotics in an all-cash transaction for $370 million upfront and up to $130 million of contingent payments related to development and commercial milestones. This transaction is likely to have aided Stryker Spine foray into the intra-operative Imaging segment apart from aligning with the company’s implant and navigation offering. We expect this development to have positively impacted the company’s third-quarter performance.

However, unfavorable pricing may have affected Stryker’s third-quarter performance. Moreover, high debt might have put pressure on the margins.

What Our Quantitative Model Suggests

Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is the case here as you will see.

Earnings ESP: Stryker has an Earnings ESP of +1.61%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Stryker carries a Zacks Rank #3.

Other Stocks Worth a Look

Here are some other medical stocks worth considering as these too have the right combination of elements to post an earnings beat this quarter.

Zimmer Biomet Holdings, Inc. ZBH has an Earnings ESP of +4.81% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

GW Pharmaceuticals plc GWPH has an Earnings ESP of +9.65% and a Zacks Rank of 3.

Pacific Biosciences of California, Inc. PACB has an Earnings ESP of +15.39% and a Zacks Rank of 3.

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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 Nasdaq, Inc.

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