Thesis intact. Key takeaways:
On a comparative basis, Stryker delivered solid 1Q results with 8% organic sales and 13% EPS growth. Total sales were up 8.2% on a constant currency basis, acquisitions added 1.2%, volumes and mix were a positive 8.6% while price was a negative 1.6%. Their US knee business continued to grow ahead of the market with 7.3% organic growth, gaining market share. The first quarter also saw 8,200 total knees done using the Mako robot, up from 7,150 in 4Q17, and placing a total of 28 Mako robots of which over 50% were into competitive accounts – JNJ had commented on the competitive environment pressuring their sales in that space – today’s results confirm that the market is still growing and SYK won market shares.
On the negative news front, Spine sales were weak again (flat y/y), as continued market softness in the US was impacted by double-digit price declines across the portfolio on top of last year’s high single-digit price decline (excluding innovative products such as the tritanium cage). Competitors in Spine saw negative organic growth: -7% for JNJ and -3.8% for Zimmer.
Following strong 1Q results, management raised organic revenue guidance range by 50bps from 6.0-6.5% to 6.5-7.0% growth for the year, and EPS to $7.18-7.25 (+11-12% y/y growth) from $7.07-$7.17, which includes $0.04 of dilution from recently acquired Entellus.
We continue to believe Stryker can continue to deliver above-average sales and EPS growth due to its business mix, innovative profile and M&A integration ability. We remain positive on this name, even after a strong stock move for the past 12 months.
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
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