Stock (Symbol)

Stryker (SYK)

Stock Price

$155

Sector

Healthcare

Data is as of

November 27, 2017

Expected to Report

Jan 22

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 (SYK) has been a solid selection this past year, but profit growth has slowed as the P/E has risen, and that tells me the stock could take a breather. 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. The past couple of years have been good to the company, and profits could rise 13% for the 2nd straight year. But SYK stock is up more than 30% in the the last year, more than double the rate profits have grown at, thus I feel the stock is in need of a breather here. Still, Stryker continues to be an excellent core holding for conservative investors. Right now the stock is around my 2018 Fair Value, but continued acquisitions will likely help company profits — and perhaps the stock — exceed my expectations.

One Year Chart

Last qtr SYK had just 9% profit growth, which broke a streak of double-digit growth that dated back six qtrs. The company also missed estimates by a penny

ack-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 ag. Then the P/E bottomed at 13 in 2012 and the stock moved up on a combination of moderately and a higher P/E that was recently helped by years of back-to-back double-digit growth. SYK is one of the world’s safest stocks, and has the ability to generate double-digit profit growth via just 5% organic sales growth, acquisitions and stock buybacks. The only issues are (1) the P/E is high compared to recent years, (2) the stock is extended on the charts and (3) the shares are already at my 2018 Fair Value. SYK ranks 31st of 32 stocks in the Conservative Portfolio Power Rankings. That being said, both company profits the stock could exceed my expectations with continued acquisitions.