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Analyst Blog

On July 10, we have updated our research report on Stryker Corporation (SYK - Analyst Report). We are confident about the stock given its continued momentum and potential to become a major medtech company.

Stryker continues to grow through acquisitions. In Dec last year, Stryker completed its acquisition of MAKO Surgical to get hold of the latter’s advanced robotic arm technology known as Robotic Arm Interactive Orthopedic System (RIO). The acquisition helped Stryker gain competitive edge in the hip-and-knee replacement market.

In March this year, Stryker completed acquisitions of Irvine, CA-based Patient Safety Technologies and Sunnyvale, CA-based developer of hip arthroscopy products, Pivot Medical, Inc.

Pivot’s offerings are expected to complement Stryker's existing Sports Medicine portfolio and will provide Stryker's customers with more comprehensive solutions to address certain challenges faced during current Sports Medicine procedures.

Thereafter, in April, Stryker closed the Berchtold acquisition, which is expected to boost Stryker’s fast growing endoscopy division and operating room equipment product portfolio by adding complementary solutions.

However, Stryker faces strong competition from Johnson & Johnson (JNJ - Analyst Report). It also faces obstacles for becoming a major medtech company from a couple of recent M&A activities. They include the merger announcements between Medtronic, Inc. (MDT - Analyst Report) and Covidien plc (COV - Analyst Report), and between Zimmer Holdings, Inc. (ZMH - Analyst Report) and privately-owned Biomet, Inc.

Both of these M&A activities pose threat to Stryker’s attempt to become a major market power. However, Stryker can mitigate the impact from these M&A activities by turning their previously rumored bid to takeover London-based Smith & Nephew plc (SNN - Snapshot Report) into reality.

The acquisition of Smith & Nephew will further boost Stryker’s competitive position in the hip and knee replacement market after the MAKO acquisition and open up avenues for growth in the wound-care management business. In addition, the acquisition will help Stryker take advantage of the potential growth in the emerging market.

For 2014, Stryker expects to report adjusted EPS in the range of $4.75 to $4.90. The current Zacks Consensus Estimate of $4.80 lies within the guided range.

As per Stryker, organic revenues growth is expected in the range of 4.5 to 6.0% for 2014. Unfavorable foreign exchange is expected to impact the full year and second-quarter net sales by less than 1%.

Currently, Stryker carries a Zacks Rank #3 (Hold).

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