Key Takeaways:
Current Price: $270 Price target: $293
Position size: 2.38% 1-year Performance: +38%
Stryker released its 2Q 2021 earnings last evening. Sales were up +9.3% organically form 2019 (+43% from 2020). Lower COGS and SG&A expenses due to cost discipline and leverage helped margins, although the company is not back to full spending post-covid.
The portfolio performance improved sequentially, and pushed the management team to raise its full year guidance.
- The US knee business is back in positive territory (+4%), although below pre-covid level (+8%). Orthopedic surgeries are elective in nature and thus still seeing some impact from covid. Surgeries are moving to various settings such as surgery centers (away from hospitals), but this does not seem to affect tool/products used by surgeons.
- In MedSurg, hospitals capital equipment orders is strong, a positive leading indicator.
- The Wright acquisition -its largest ever- is going better than expected and added 7% to top line this past quarter.
The disruption from the Delta variant is baked into their updated guidance, while some care continues to be deferred and will be a tailwind in 2022. For 2021, sales guidance was lifted on the lower end to +9-10% from 2019 levels, and EPS guidance lifted as well by the $0.11 beat, thanks to 2Q performance (implying 2H unchanged). Operating margin guidance is unchanged, remaining at +30-50bps from 2019, excluding M&A impact.
Overall this was a good quarter, but the evolution of the recent rise in covid cases across the globe will dictate how 2H21 turns out. We remain positive on this name long-term and maintain our price target unchanged due to remaining uncertainties for the rest of 2021.
CEO quote:
- “On hip and knee, what we’re seeing is really a gradual increase. We’ve seen throughout the year a return of elective procedures. These are deferrable procedures that need to be done at some point. And yes, with the Delta variant, you’re starting to see pockets of disruption, but overall, the hospitals are very capable of being able to deal with this.”
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