Key Takeaways:
Current Price: $266 Price target: $293
Position size: 2.41% 1-year Performance: +31%
Stryker released its 3Q 2021 earnings last evening. Sales were up +4.5% organically y/y (+8.4% from 2019).
- The US knee/hip/spine business showed some slowdown during the quarter, as those procedures are more deferrable than others more urgent.
- The Delta variant was most impactful in Florida and Texas, with a peak seen in early September.
- Staffing shortage worsen between July and September
- Medical and surgical equipment remains good with orders up.
- Ongoing demand for Mako (Robotic surgery) continues, despite competitive landscape. Half of new sales were in new hospitals.
- New catalyst: the company is developing a shoulder surgery robot for shoulder implants as well – no launch date yet.
- Gross margins expanded 55bps vs. 2019 but operating margins were flat.
Although the management team had increased its guidance for 2021 due to good recovery in Q2, it is now lowering its target by ~2% (now 7-9% from 9-10%)) to account for Delta variant impact and staffing shortages likely to persist through year-end. EPS guidance is lowered as well to $9.08-9.15 (versus $9.25-9.40 prior).
Valuation is not overvalued, but not cheap either where I would want to add to the position. Long-term thesis is intact.
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