Key Takeaways:
Current Price: $185 Price target: $201 NEW ($198 OLD)
Position size: 3.62% 1-year Performance: +12%
Stryker released results with organic sales up +7.3%. This quarter operating margin improved 10bps (including a 50bps negative impact from acquisition). Its Mako robot will see some competition in the near future as peer Zimmer is launching its own knee replacement robot (Rosa), but so far the order book remains strong for SYK, with 55% of the placements in accounts taken from competitors. A total of 35 robots were placed globally (27 in the US). Regarding the recent K2M acquisition, the combined sales organization is now in place, which will allow a revenue ramp up as the year progresses. We are raising our price target slightly to account for a continued good growth in the business.
Segments revenue growth:
· Orthopedics organic revenue growth of 5% was driven by 6.4% international growth and 6.6% growth in Knees which benefited from strong Mako TKA demand and strength in cementless
· MedSurg organic revenue growth of 8.9%, led by 17.5% U.S. Instruments growth and 7.5% Endoscopy growth (NOVADAQ and Sports Medicine). The Medical division grew 9.2% organically in the US, reflecting solid performance in the bed, stretcher, and Sage businesses
· Neurotech & Spine organic growth of 7.8%
2019 Guidance update:
Organic sales increased on the low end from 6.5-7.5% to 6.8%-7.5%
30-50bps EBIT margin improvement reiterated
Adjusted EPS raised on the low end from $8.00-$8.20 to $8.05-$8.20
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
[tag SYK]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square
Suite 500
Boston, MA 02109