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Shares of Stryker Corp. (SYK - Analyst Report) hit a new 52-week high of $64.10, before closing on Tuesday, Feb 12 at $63.01. The orthopedic giant’s share price has been increasing consistently since it reported its fourth quarter 2012 results on Jan 23. Average volume of shares traded over the last 3 months came in at approximately 1.9 million.

Drivers that Triggered Momentum

A positive fourth-quarter earnings surprise, an improving reconstructive business along with strategic acquisitions facilitated the shares of Stryker to gather momentum and achieve a new high.

Stryker’s adjusted earnings increased 11.8% year over year to $1.14 a share for the fourth quarter of 2012, beating the Zacks Consensus Estimate by a penny. Sales grew 5.5% (6.1% in constant currency) to $2,337 million, also exceeding the Zacks Consensus Estimate of $2,277 million.

One of the driving factors behind the sales growth was the turnaround in the company’s core Reconstructive business, which is likely to improve going forward. Revenues from Stryker’s core Reconstructive unit (which offers replacement hip, knees and extremities products) increased 6.7% (or 7.4% in constant currency) to $1,046 million in the quarter. This reflects a marked acceleration from the 1.1% growth achieved in the previous quarter, which implies improving reconstructive market fundamentals. Besides, U.S. Reconstructive sales jumped 13.9% year over year in the quarter.

Further, we are impressed by Stryker’s decision to acquire a leading China-based trauma manufacturing company, Trauson Holdings, for $685 million, to expand its foothold in emerging markets. Stryker’s strategy to expand through acquisitions is expected to drive long-term growth for the company.

Stock’s Key Indicators

Stryker currently trades at a forward P/E of 14.80x, reflecting an 8.5% premium to the peer group average of 13.64x. Its price-to-sales ratio of 2.80 is also at a premium to the peer group average of 2.58. Given the company’s compelling fundamentals, the premium valuation is justified.

At the same time, the company is more efficient with its assets and investments than its peers, which acts as a positive factor for growth. The company has a 12-month ROA and ROI of 12.2% and 15.6%, which is above its peer group average of 10.9% and 14.3%, respectively.

About the Company

Mich.-based Stryker Corporation is one of the world’s largest medical device companies operating in the global orthopedic market. Its wide range of products hedges the company from any significant sales shortfall in economic downturns.

The company currently has a Zacks Rank #3 (Hold), mainly due to the ongoing uncertainty in the global economy. While we remain on the sidelines regarding Stryker, medical products companies such as Nuvasive Inc. (NUVA - Snapshot Report), Hanger Inc. (HGR - Analyst Report) and ResMed Inc. (RMD - Analyst Report), which carry Zacks Rank #1 (Strong Buy), appear impressive.

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