Stryker (SYK) Earnings And Revenues Beat Estimates In Q1

Maintaining its streak of positive earnings surprises, Kalamazoo, MI-based medical technology company Stryker Corp (NYSE:SYK) reported adjusted earnings of $1.48 per share in the first quarter of 2017, which comfortably beat the Zacks Consensus Estimate by 5 cents. Earnings improved from $1.24 per share in the year-ago quarter.

Meanwhile, over the trailing four quarters, the company posted earnings beats, the average being 2.04%. Currently, Stryker carries a Zacks Rank #3 (Hold).

The upside in earnings was primarily driven by a rise in revenues to $2.96 billion, which beat the Zacks Consensus Estimate of $2.91 billion. At constant currency (cc), net sales improved 18.8% from the year-ago quarter.

The major segments of Stryker are Orthopedics (accounting for 38.4% of net sales), Medsurg (44.2%) and Neurotechnology & Spine (17.4%). Orthopedics, Medsurg and Neurotechnology & Spine recorded year-over-year growth of 7.8%, 36.6% and 7.7%, respectively, at cc.

Stock Performance

Over the last three months, the stock added 12.31%, comparing favorably with the Zacks classified Medical Products sub industry’s decline of 9.08%. In fact, the current level is also higher than the S&P 500’s solid return of around 4.24% over the same time frame. Furthermore, a long-term expected earnings growth rate of 9.56% instills confidence in investors.

Segment Details

MAKO results in the quarter were solid, with almost 18 global installations of robots, of which 11 were in the U.S. Additionally, the acquisitions of Sage Products and Physio-Control added $245 million to the company’s net sales.

Organic sales growth was 8.2% in the quarter, with U.S. sales increasing 7.6%, courtesy of solid performances by MedSurg and Neurotech. International segments posted growth of 9.9% on strong momentum in Europe and a return to growth in emerging markets (China).

Orthopedic sales increased 7.2% at cc to $1.14 billion, driven by increased unit volume partially offset by lower prices.

MedSurg sales surged 10.8% at cc to $1.31 billion due to increased unit volume and higher prices.

Neurotechnology and Spine sales increased 5.3% at cc to $0.52 billion, primarily owing to increased unit volume partially offset by lower prices.

Guidance

For the second quarter of 2017, Stryker expects adjusted earnings in the range of $1.48–$1.52 per share. For the full year, the company expects adjusted earnings in the band of $6.35 to $6.45. Stryker expects organic sales growth of 5.5% to 6.5% for full-year 2017.

Our Take

We believe Stryker’s innovative product pipeline will be a key catalyst in the near term. Furthermore, growing adoption of MAKO will drive sales in the orthopedic and reconstructive surgery market.

On the flip side, China might prove to be a challenging market for the company. Coming to supply-side headwinds, the company has been grappling with supply issues in the spine business for long. We believe this may prove to be a major drawback in the quarters ahead. Nevertheless, Stryker’s efforts in sales force management should bode well.

Stocks to Consider

Better-ranked stocks in the broader medical sector include Glaukos Corporation (NYSE:GKOS) , Avinger, Inc. (NASDAQ:AVGR) and Fluidigm Corporation (NASDAQ:FLDM) . Notably, Glaukos Corporation and Fluidigm sport a Zacks Rank #1 (Strong Buy), while Avinger has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Glaukos Corporation has a long-term expected earnings growth rate of approximately 25%. Notably, the stock represents an impressive one-year return of 197%.

Fluidigm Corporation has a long-term expected earnings growth rate of 25%. The stock added 11.4% over the last three months.

Avinger projects sales growth of 2.3% for the current year. Additionally, the company delivered a positive earnings surprise of 27% last quarter.

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