Stock (Symbol)

Stryker (SYK)

Stock Price

$141

Sector

Healthcare

Data is as of

May 28, 2017

Expected to Report

Jul 19

Company Description

Stryker is a medical technology company. The Company operates through three segments: Orthopaedics, MedSurg, and Neurotechnology and Spine. 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. Stryker has three main divisions:

Orthopaedics – knees, hips, trauma & extremities.
MedSurg – instruments, endoscopy, medical.
NeuroTech & Spine – spine, neurovascular.

Stryker has compiled 37 straight years of record sales growth and is cash rich. The company makes acquisitions, buys back stock, pays a dividend that’s increased 15% a year since 2012, and gets an excellent safety rating. Last year SYK made some good acquisitions, including Sage Products & Physio Control, thus profits and sales grew faster than normal the past 4 qtrs. Sales jumped 18% last qtr, but had only 8% organic sales growth with the remainder coming via acquisitions. Now sales growth is expected to moderate, as are expected to rise just 5% next qtr. Management targets profit growth of at least 9% annually, and analysts peg the Est. LTG at 10% a year in addition to a dividend yield of 1%. 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. Profit growth was great this past year due to some new buys, but now growth could slow to around 10-12% going forward. At 22x earnings, this stock has a premium price, but is a good stock long-term.

One Year Chart

There’s a big difference in the past 4 qtrs profit growth and the Estimates of 9%, 9%, 8% and 7% growth analysts expect for the next 4 qtrs. But, SYK has beaten the street the past 4 qtrs so maybe that trend continues. Management sounded very bullish on the conference call while rattling off strong results from almost every division. But this didn’t translate into analysts increasing their estimates.

Fair Value

My Fair Value on Stryker is 20x earnings, which is higher than the norm for SYK. I’m reluctant to say this stock is worth 22x earnings when profit growth is expected to slow.

Bottom Line

Stryker was a lackluster stock for the first part of the last decade because the P/E was too high a decade ago. Then the P/E bottomed at 13 in 2012 and the stock moved up on a combination of moderately higher profits and a much higher P/E. This is a solid stock for conservative accounts, but with a P/E of 22 it’s priced high. SYK ranks 29th of 34 stocks in the Conservative Portfolio Power Rankings.