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On Aug 28, we retained Stryker Corp. (SYK - Analyst Report) at Neutral, following its mixed second-quarter results. Although the company’s solid top-line growth is impressive, foreign exchange headwinds from international operations is a matter of concern.

Why the Retention?
 
On Jul 18, Stryker posted second-quarter 2013 adjusted earnings per share of $1.00, which were 3 cents lower than the Zacks Consensus Estimate but higher than the year-ago earnings by 2%. Revenues of $2,212 billion beat the Zacks Consensus Estimate of $2,192. However, it grew modestly by 5% from the prior year due to unfavorable impacts of prices and foreign exchange movements that strongly offset the company’s healthy sales across all the businesses.,.
 
The company’s earnings have managed to beat the Zacks Consensus Estimate in 2 out of the last 4 quarters, with an average negative surprise of 0.27%. In the last 60 days, the Zacks Consensus Estimate for 2013 and 2014 dropped 1.4% and 0.6% to $4.23 and $4.64, respectively. Due to negligible changes in estimates, SYK has a Zacks Rank #3 (Hold).
 
Stryker is one of the world’s largest orthopedic companies and we believe that it should benefit from new product launches, expansion into emerging markets, cost control measures and increasing operating efficiency. Moreover, the sequential turnaround in the international business reflects positive impact of the company’s restructuring measures.
 
However, Stryker remains challenged by the inconsistency in global capital-spending environment, pricing pressure along with currency fluctuation and intense competition. Despite the raised top line guidance for 2013, the tempered bottom line outlook due to fluctuations in foreign exchange rates is a matter of concern. Additionally, a series of product recalls is adversely affecting some of its key segments.
 
Other Stocks to Consider
 
Medical stocks that are worth considering include Alere (ALR - Snapshot Report), carrying a Zacks Rank #1 (Strong Buy), along with St. Jude Medical (STJ - Analyst Report) and Exactech (EXAC - Snapshot Report), both carrying a Zacks Rank #2 (Buy).
 

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