Stock (Symbol)

Stryker (SYK)

Stock Price

$99

Sector

Healthcare

Data is as of

February 2, 2016

Expected to Report

Apr 19 – Apr 25

Company Description

Stryker Corporation is a medical technology company. The Company offers a range of products and services in Orthopaedics, Medical and Surgical, and Neurotechnology and Spine, which help improve patient and hospital outcomes.
Source: Thomson Financial

Sharek’s Take

Stryker (SYK) is growing profits around 8% to 10% right now. The manufacturer of replacement joints, surgical equipment and hospital beds produced 8% profit growth last qtr, and estimates call for 8%, 9%, 10% and 10% growth the next 4 qtrs. Although around 70% of sales come from the US, the company is still being slightly affected by F/X, if it weren’t for the strong dollar profits would be growing around 13%. Stryker is a conservative stock, earning Value Line’s top rank of 1 for safety, and has had 36 straight years of sales growth. The company is cash rich. It pays a dividend of 1.5%, buys back stock and does acquisitions to boost growth. In fact, it just spent $2.78 billion in cash for medical supplier Sage Products on February 1st, which should add $0.05 to 2016 profits. SYK has an estimated long-term growth rate of 10% a year, and when you add in the yield of 1.5%, the stock is hypothetically expected to give investors low double-digit total returns. But at 18x earnings, SYK is just slightly overvalued in my eyes. Still, the stock might have a good 2016 as investors are appreciating certainty and consistency with the recent stock market volatility.

One Year Chart

In retrospect, I should have picked up some shares of Stryker when it dipped with the stock market this month. It got down to around 15-16x earnings. Last qtr the company had 4% revenue growth and 8% profit growth, and SYK beat the street by a penny. But next qtr’s profit growth estimate declined slightly from 12% to 8%. Annual Profit Estimates have remained steady the past few qtrs.

Fair Value

My Fair Value on this stock is 17x earnings. I feel SYK is right where it should be.

Bottom Line

Stryker has been trending up the past five years, and with investors appreciating consistent growth with high certainty — something Stryker delivers — this trend could continue. Still, I feel SYK is fairly valued at this juncture, but larger conservative accounts will appreciate the safety, certainty and consistency Stryker provides to portfolios.