Key Takeaways:
· While sales growth was as expected in the early part of the quarter, the business was impacted by the COVID-19 crisis in March 2020
· Last week of March, sales were down 30%
· Expect a recovery in China in Q2 while other countries will get worse in early Q2, before recovery takes place in US and abroad
· Forecast a sales decline in April of 35-40%
Current Price: $186 Price target: $232 (NEW)
Position size: 2.63% 1-year Performance: -1%
Stryker released their 1Q20 results with organic sales up +2.4%, operating margins declined 110bps and EPS -2%. While only a few months ago Stryker was not seeing any impact from COVID-19 on its business, things have turned quite the opposite way towards the end of the quarter with global delays in elective surgeries. SYK withdrew its guidance for the year due to the uncertain scope and timing of COVID-19 and return to “normal”. About 40-50% of SYK’s revenue base includes procedures that are elective or can be deferred for some time. The stay-at-home orders have also caused a reduction in its trauma segment (reduction in construction and reduced activities). 15% of sales are “capital equipment” that have seen an increase in demand (you have probably seen the Stryker beds in the news covering the crisis in hospitals). In response to the drop in sales, SYK is lowering expenses by reducing travel, furloughing employees if/when needed. During the call, the management team noted that their sales people are doing well engaging virtually with doctors (for training purposes for example), and this could become a new normal. The price target is reduced to $232 to reflect 2020 lower numbers. Overall we still believe SYK will do well in the long-term as demand recovers, and remain positive on the stock.
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
[category earnings] [tag SYK]
Julie S. Praline
Director, Equity Analyst
Direct: 617.226.0025
Fax: 617.523.8118
Crestwood Advisors
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Suite 500
Boston, MA 02109