Key Takeaways:
Current Price: $260 Price target: $293
Position size: 2.54% 1-year Performance: +40%
Stryker released its 1Q 2021 earnings last evening. Sales were up +4.7%, including its recent Wright acquisition, and +1.8% organically – finally in positive territory. Growth in the US was more subdued (+1% vs international growth of +15% due to timing of the pandemic starting earlier outside of the US). The management team noted an acceleration in demand towards the end of the quarter, a reassuring trend for the coming quarters. Order book activity is firming up as well as we entered April. Hips and knees surgeries are returing to the mid-single-digits growth in April (a trend JNJ mentioned as well), which is encouraging but not surprising as this is a big profit center for hospitals. On the margin front, operating margins declined 160bps over 2019 levels, as the company integrates Wright Medical and ramp up spending to fuel future growth. Overall the recovery in SYK businesses in happening, with future innovation likely to drive growth. Margins expansion is momentarily limited as the company spends on R&D. We remain bullish on the company’s future and maintain our position in the stock.
- Guidance in sales for 2021 remains unchanged at +8% to +10% vs. 2019 levels, implying an acceleration throughout the year
- The management team reiterated their operating margin expansion of 30-50bps over 2019 levels
- EPS for the year was raised as the Wright integration is rolling up faster than planned.
- So far competitor’s launch of knee robots have not taken market share away from them (JNJ launching Velys approved in January 2021, Zimmer launch of Rosa), but rather brought more interested and validation to this category
- Mako robot seeing good growth in the US but also outside of the US where regulatory approval was gained in 2020
- CEO quotes:
- “The other thing that makes us very confident on the full-year outlook is the order book for capital equipment, both large capital and small capital, which is both picking up. So overall, we’re feeling bullish.”
- “We are encouraging divisions to ramp up some of their spending to make sure that we are properly positioned for growth, that would also include spending in innovation. And so we are making sure that we are not doing anything to hold back product development and other innovation spending that frankly will be needed to really fuel growth even towards the end of this year or even early into next year.”
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
One Liberty Square
Suite 500
Boston, MA 02109