Stock (Symbol)

Stryker (SYK)

Stock Price

$146

Sector

Healthcare

Data is as of

August 8, 2017

Expected to Report

Oct 26

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 experiencing higher than normal growth due to acquisitions. Overall sales increased 18% last qtr, with just 7% growth organic. That’s an 11% boost in sales from companies Stryker bought in the last year including Sage Products & Physio Control. 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. Management targets profit growth of at least 9% annually, and analysts have an Est. LTG at 10% a year on the stock 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. Also, a lower USD — as we are experiencing — can help profits, as F/X took profit growth down from 13% to 10% last qtr. With estimates rising and the company delivering double-digit profit growth, the stock is timely. But the P/E of 22 makes the stock fairly valued at this point in time.

One Year Chart

Stryker used to be a 20% grower around a decade ago. Then SYK went through a period (2008-2016) in which profits would grow +10% one year then less than 10% the next. 2017 is expected to be the first time the company had back-to-back double-digit profit growth years in a decade. Last qtr SYK had profit growth of 10% and beat estimates of 9% (the 5th straight beat). Future estimates got upped, with 2017 estimates growing from $6.43 to $6.50. Qtrly estimates increased too, and now analysts expect 10%, 10%, 8% and 10% profit growth the next 4 qtrs. With an Est. LTG of 10%, the stock is rich with a P/E of 22.

Fair Value

My Fair Value on Stryker goes up from 20x earnings to 22x. Momentum is strong and the company is on a roll with acquisitions that could boost profits above expectations.

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. SYK is one of the world’s safest stocks, and to generate double-digit profit growth is impressive. Everything is clicking with this company and the stock, but the angle of the chart has increased a little this year and that combined with a rich P/E of 22 zap some of the long-term potential. SYK ranks 26th of 32 stocks in the Conservative Portfolio Power Rankings.