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Analyst Blog

Stryker Corporation (SYK - Analyst Report) recently reported the successful conclusion of its voluntary offer to purchase Trauson Holdings Company Limited. Based in China, Trauson’s offerings include trauma-related products.

The acquisition will enable Stryker to grow market share in the value-oriented orthopedic segment in developing nations. The deal is not expected to impact Stryker’s earnings per share for 2013.   

One of the driving factors behind Stryker’s sales growth is the on-going turnaround in the company’s core Reconstructive business, which may further 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 latest quarter. This reflects a marked acceleration from the 1.1% growth achieved in the previous quarter. It also implies improving reconstructive market fundamentals. Besides, U.S. Reconstructive sales jumped 13.9% year over year in the quarter.

Stryker, with a market-cap of $24.7 billion, is one of the world’s largest medical device manufacturers operating in the global orthopedic market. The company’s well-diversified product portfolio, expanding foothold in emerging markets along with acquisitions are expected to drive future growth.

Moreover, the company remains committed to delivering incremental returns to investors, as reflected in the recent hike in dividend and sizeable share repurchase program.

However, Stryker faces several challenges, which include continued soft international sales and tight hospital capital budgets. Moreover, despite the recent stability in the domestic market, it remains challenged by the prevailing austerity measures in Europe.

Stryker carries a Zacks Rank #3 (Hold). Medical products companies, such as Nuvasive, Inc. (NUVA - Snapshot Report) and Hanger, Inc. (HGR - Analyst Report), which carry a Zacks Rank #1 (Strong Buy) and Zacks Rank #2 (Buy), respectively, are expected to do well.

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