Stryker 4Q21 earnings summary

Key Takeaways: Long-term thesis is intact so I recommend to take advantage of recent weakness and add to SYK in any account that is underweight SYK vs. our model.

Current Price: $239                          Price target: $293

Position size: 2.31%                        1-year Performance: +6%          

 

Stryker released its 4Q 2021 earnings last evening.

  • Sales were up +9% organically y/y which is a typical pre-covid growth rate for SYK.
  • Elective procedures pressure due to covid impacted Hips & Spine business, while knees, trauma and other did better than expected.
  • Mako growth of +27% in 2021, with an installed base of robots of 1,500! Like mentioned before, new competitors entering the marketplace is actually triggering interest in Mako and new trials, resulting in additional wins.
  • Gross margin pressure from: business mix, employee absenteeism, inflation (steel, electronics, transportation)
  • Cost discipline helped offset some of the inflation impact

 

FY22 guidance:

  • Top line growth +6-8% organic – we view this as great considering continued covid pressure
  • Gross margin pressures result in 50-100bps contraction y/y
  • EPS $9.60-$10.00 shows lower operating leverage than expected (supply issues with electronics)

 

Why is the stock down today?

  • Macro headwinds continue to pressure margins
  • Guidance for FY22 is somewhat muted by all the covid/supply chains/inflation uncertainty pressuring EPS growth

 

Why do we still like the stock?

  • Diversified revenue drivers, premium products offered help the company gain market shares
  • Strong order book for capital products from hospitals
  • Mako robots still best-in-class and ahead of competitors
  • M&A actions have typically been additive to SYK. Recent Vocera deal is neutral to EPS this year

 

 

Valuation is not expensive due to continued covid pressure. Long-term thesis is intact so I recommend to take advantage of recent weakness and add to SYK in any account that is underweight SYK vs. our model.

 

 

   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

 

www.crestwoodadvisors.com