Key Takeaways:
After a strong quarter of earnings and market share gains, management raised its 2018 outlook for organic sales growth by 50bps to 7-7.5%, and EPS by 1%. Overall the quarter was solid and consistent with its history, showing a top line growth of +6.9% organic, adjusted operating margin +70bps (30bps above consensus) and EPS +15%. We maintain our positive view on the stock.
Why is the stock down today?
· Stock was up >10% YTD, trading at a 1.7% FCF yield and 27.5x current P/E
· 3Q18 guidance came below consensus numbers
· Their Knee business missed consensus by a small 0.5%, but as a well-publicized driver of growth for the company, and with recent competitors’ weakness in that space, expectations were high. Still, we argue that Mako showed a utilization rate growth of 55% y/y.
Market share progression for Stryker (Bloomberg data):
SYK Thesis:
- Consistent top and bottom line growth in the mid and upper single digits respectively
- Continued operating leverage of current infrastructure
- Strong balance sheet and cash flow used in the best interest of shareholders
$SYK.US
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Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
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