Stock (Symbol)

Stryker (SYK)

Stock Price

$123

Sector

Healthcare

Data is as of

February 12, 2017

Expected to Report

Apr 18 – 24

Company Description

Stryker Corporation (Stryker) is a medical technology company. The Company operates through three segments: Orthopaedics, MedSurg, and Neurotechnology and Spine. The Company’s Orthopaedics segment products consist of implants used in hip and knee joint replacements and trauma and surgeries. The Company’s MedSurg segment products consist of surgical equipment and surgical navigation systems (Instruments); endoscopic and communications systems (Endoscopy); patient handling and emergency medical equipment (Medical), and reprocessed and remanufactured medical devices (Sustainability), as well as other medical device products used in a range of medical specialties. The Company’s Neurotechnology and Spine segment products consist of both neurosurgical and neurovascular devices. The Company’s products are sold in approximately 100 countries through the Company-owned sales subsidiaries and branches, as well as third-party dealers and distributors. Source: Thomson Financial

Sharek’s Take

Stryker is thriving with the help of some excellent acquisitions. Stryker develops orthopedic implants, surgical equipment, neurotechnology and spine products. Last year SYK made some good acquisitions, including Sage Products & Physio Control, and now profits are growing faster than normal. Company sales jumped 16% last qtr, and 9% of that was due to acquisitions. Profits have increased 13% on avg. the past 4 qtrs, above the 10% norm. Stryker has three main divisions:

Orthopaedics – knees, hips, trauma & extremities, 38% of sales.
MedSurg – instruments, endoscopy, medical, 44% of sales
NeuroTech & Spine – spine, neurovascular, 18% of sales.

Stryker has compiled 37 straight years of record sales growth and is cash rich. The company makes acquisitions, buys back stock, pay a dividend that’s increased 15% a year since 2012, and gets an excellent safety rating. Management targets profit growth of at least 9% annually, and analysts peg the Est. LTG at 10% a year. Tack on a 1.5% dividend and this safe stock has the ability to provide double-digit returns. SYK sells for 19x earnings, which is just below my Fair Value P/E of 20. Profits look to grow 15% next qtr, then simmer down to 9%, 9% and 8% growth the following qtrs. This is a good safe stock for conservative investors, but it’s close to my Fair Value of $128.

One Year Chart

Stryker grew sales 16% last qtr as profits grew 14% and beat the 13% estimate by 2 cents a share. But forward looking qtrs had estimates reduced by a penny or two, and now Estimates for the next 4 qtrs are for 15%, 9%, 9% and 8% profit growth — which is SYK beats by a little as it has the last 4 qtrs it could have 10% profit growth for the year.

Fair Value

My Fair Value on Stryker is 20x earnings, but I might reduce this to 18x next qtr as profit growth is expected to simmer down to more normalized levels.

Bottom Line

Stryker SYK has decent long-term appeal for investors who cherish safety and are in search of double-digit total returns. Management does a great job acquiring other companies which fit into the company’s lineup. And when there’s no good acquisitions, it buys back stock instead. I love companies that grow via acquisitions, buy back stock, pay a dividend that increases every year, and deliver 10% or greater total returns. SYK ranks 21st of 30 stocks in the Conservative Portfolio Power Rankings.