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Stryker (SYK) Down 1% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Stryker (SYK - Free Report) . Shares have lost about 1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Stryker due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Stryker Q2 Earnings and Revenues Surpass Estimates

Stryker Corporation reported second-quarter 2020 adjusted earnings per share of 64 cents, which beat the Zacks Consensus Estimate of 62 cents by 3.2%. However, the bottom line plunged 67.7% year over year owing to the impact of the COVID-19 pandemic.

The Michigan-based medical device company reported revenues of $2.76 billion, which surpassed the Zacks Consensus Estimate by 5.3%. However, the top line declined 24.3% on a year-over-year basis and 23.5% at constant currency (cc).   

Revenues by Geography

Revenues in United States came in at $1.97 billion, down 27.1% year over year. International sales declined 16.4% to $798 million.

Segmental Analysis

Orthopaedic: In the quarter under review, revenues in the segment totaled $894 million, down 29.8% year over year. The segment’s revenues declined 29.3% at cc. The downside can be attributed to weak performance at the Knees, Hips and Trauma and Extremities sub segments.

MedSurg: This segment reported sales of $1.32 billion, down 17.3% year over year. Sales at the segment decreased 16.4% at cc. Per management, the segment declined 29.3% organically in the reported quarter, owing to weak Instruments, Endoscopy and Medical performances.

Neurotechnology and Spine: Sales in the segment amounted to $546 million, down 29.6% year over year and 28.9% at cc. Organically, the segment witnessed a decline of 29.9%. Per management, the downside was can be attributed to a slowdown in procedures in the second quarter in all the neurotech product lines.

Margins

In the second quarter, adjusted gross profit totaled $1.58 billion, down 34.1% from the year-ago quarter. Adjusted gross margin was 57.3%, down 850 basis points (bps).

Adjusted operating income amounted to $345 million, down 63.5% from the prior-year quarter. Adjusted operating margin was 12.5%, down 1340 bps.

Financial Update

Cash and cash equivalents came in at $6.54 billion, up 50.8% from the year-end 2019.

Cumulative net cash provided by operating activities in the second quarter were $1.21 billion, reflecting an increase of 46.4% from the year-ago period.

2020 Outlook

Due to the continued uncertainty surrounding the magnitude and duration of the COVID-19 pandemic, and the uncertain timing of global recovery and economic normalization, the company is unable to project the overall impact on its operations and financial results. Consequently, the company hasn’t provided third-quarter or full-year 2020 organic sales or earnings outlook.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Stryker has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Stryker has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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