Key Takeaways:
Current Price: $176 Price target: $198 NEW ($188 old)
Position size: 3.70% 1-year Performance: -4%
Stryker released continued impressive results with sales up 9.4% (+8.6% organic, the best organic sales growth in a decade). The management team is very bullish on Mako’s growth, especially starting in 2020 once a big wave of training of surgeons on the robot is done in China & Japan. But growth is broad-based, and for 6 years in a row, SYK revenue growth has outperformed its competitors by 200-250bps. This quarter operating margin improved 30bps (40bps for full year) which came from continued good leverage and expenses savings. Recent acquisitions have been dilutive to their margins so they have pushed integration further this year to improve the G&A synergies faster. “Speed of integration” has been a new mantra at Stryker for the past 2 years.
Emerging markets are only 6% of sales which presents a huge opportunity for the company. During 4Q18, EM growth was broad-based:
· Russia performing well
· Latam strong after some leadership changes
· Bought out a distributor in Turley and now performing strongly
· Strong performance in China
· Tough early in India, but management changes, and 4Q strong with bright outlook
2019 Guidance:
Organic sales to grow 6.5-7.5% (with ramp up in Q3 and Q4)
30-50bps EBIT margin improvement
Adjusted EPS $8.00-8.20
Valuation: we are increasing our price target to $198 as we roll over our model to 2019. We see a premium valuation justified as growth is consistent and should continue in the near future.
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
[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