Will Core Segmental Growth Aid Stryker (SYK) In Q4 Earnings?

Stryker Corporation’s (NYSE:SYK) fourth-quarter 2017 results are scheduled for release on Jan 30, 2018, after the market closes. In the said quarter, the company is expected to witness year-over-year revenue growth in all other business segments apart from Orthopedics, Medsurg and Neurotechnology and Spine.

Despite reporting year-over-year decline in revenues in the last quarter, the company beat the Zacks Consensus Estimate by 2 cents with a positive earnings surprise of 1.33%. Further, the company delivered positive earnings surprise of 1.82% in the trailing four quarters, on an average.

Also, a favorable price performance over the last year is also encouraging. The stock has gained 33.8% compared with the industry’s rally of 26.5%.

Company Announces Upbeat Preliminary Results for Q4

Stryker recently announced better-than-expected preliminary net sales results for fourth-quarter 2017. For full-year 2017, net sales are estimated at $12.4 billion, up 9.8% from the year-ago quarter on a constant-currency basis. The figure beat the Zacks Consensus Estimate of $12.38 billion.

Per the company’s prediction, the Orthopaedics segment is expected to generate higher revenues by 6.8% at constant exchange rate (CER). MedSurg and Neurotechnology and Spine segments are expected to see revenues improve 9.8% and 10.3%, respectively, at CER. (read more: Stryker Posts Upbeat Preliminary Sales Figure for Q4).

The Zacks Consensus Estimate for revenues from U.S. sales is pegged at $2,484 million, which reflects a 12.2% increase from the year-ago quarter.

Also, the Zacks Consensus Estimate for revenues from International sales is pegged at $909 million, which reflects a 10.3% increase from the prior-year quarter.

Factors at Play

Robust Fundamental Growth: Management is of the opinion that the recent acquisitions of NOVADAQ and VEXIM will ensure high-end organic sales growth. The full-year organic sales growth is expected in the range of 6.5-7%.

Moreover, a recent definitive merger with Entellus Medical is likely to offer a more comprehensive portfolio of products, which will enable physicians to conveniently perform a broad range of ENT procedures.

The company continues to update robots in the field with Total Knee application. Per the preliminary sales result, 65% of the systems of Stryker have been upgraded to the Mako Total Knee application. The continued momentum contributed to the net sales of the Orthopaedics segment of the company.

Diversified Product Portfolio: Stryker’s broad spectrum of products cushions the company from any significant sales shortfall. The company’s pipeline includes products like Hip, Knee and Mako Robotic-Arm Assisted Surgeries. Additionally, various platforms of bone cement, sports-medicine, bones substitute, etc. fortify the company’s market position.

Product Recall, A Negative: Recently, Stryker announced the voluntary recall of their product, Oral Care Lineup, offered by its Sage-Products Unit. Additionally, the company has placed a temporary hold on certain cloth-based products.

However, it is encouraging to note that the product-recall issue will not dampen management’s intention to improve growth trajectory in the fourth quarter.

Our quantitative model conclusively shows earnings beat for Stryker this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. It can be illustrated below:

Zacks ESP: Earnings ESP for Stryker is +0.12%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Stryker carries a Zacks Rank #3. A favorable Zacks Rank increases the predictive power of ESP and the company’s positive ESP makes surprise prediction feasible.

Stocks Worth a Look

Here are other medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

AbbVie Inc. (NYSE:ABBV) has an earnings ESP of +1.30% and a Zacks Rank #2.

Fibrocell Science Inc. (NASDAQ:FCSC) has an earnings ESP of +2.22% and a Zacks Rank #2.

Bio-Techne Corp. (NASDAQ:TECH) has an earnings ESP of +1.86% and a Zacks Rank #2.

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