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