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Here's Why You Should Retain Stryker (SYK) Stock For Now

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Stryker Corporation (SYK - Free Report) is well-poised for growth, backed by a robust robotic-arm assisted surgery platform, Mako, and a diversified product portfolio. However, pricing pressure remains a headwind.

Shares of the Zacks Rank #3 (Hold) company have lost 18.5% compared with the industry’s decline of 44.1% so far this year. The S&P 500 Index has fallen 19% in the same time frame.

Stryker, with a market capitalization of $83.5 billion, is one of the world’s largest medical device companies operating in the orthopedic market. It anticipates earnings to improve 8.8% in the next five years. SYK’s earnings yield of 4.25% compares favorably with the industry’s (4.2%).

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What’s Favoring Growth?

Stryker continues to witness strong demand for Mako and a healthy order book, courtesy of the platform’s unique features, despite financial constraints stemming from the COVID-19 pandemic. These, in turn, position it well to sustain momentum in robot sales.

The company is committed to the continued expansion of Mako. In the second quarter, the Mako installed base saw 19% year-over-year growth and currently is moving toward 1500 Mako robots. Thus, the company continues to focus on the continued expansion of the platform. This growth reflects the demand for Stryker’s differentiated Mako robotic technology.

Taking into account the normalization of the customer environment, management anticipates another strong year for Mako in 2022. The company’s Mako order book remains solid for 2022 and is in sync with its aim of continued share gains in both hips and knees.

Additionally, Stryker has a diversified product portfolio. Its wide range of products shields the company against any significant sales shortfall during economic turmoil. Its significant exposure to robotics, artificial intelligence for health care and Medical Mechatronics has helped the company stay ahead of the curve in the MedTech space. Stryker’s portfolio includes products like Hip, Knee and Mako robotic-arm assisted surgeries.

In September 2021, the company’s Trauma & Extremities division introduced a Citrelock Tendon Fixation Device System, which offers surgeons a differentiated design through a tendon thread featuring Citregen — a resorbable technology. Citregen, in particular, has chemical and mechanical qualities intended for orthopedic surgical applications.

Per management, the company’s sustained support for customers and focus on innovation poise it for growth as the pandemic subsides. In the first half of 2022, Stryker’s adjusted R&D expenses were 7.2% of net sales, highlighting its sustained commitment to innovation. Per management, this is likely to drive new product launches.

What’s Hurting the Stock?

An unfavorable pricing environment poses a persistent threat to Stryker’s core businesses. On second-quarter 2022 earnings call, the company stated that the period’s average selling days were in line with second-quarter 2021. The impact from pricing was 1.4% in the last reported quarter. Consequently, pricing pressure remains a cause of concern.

Estimate Trend

The Zacks Consensus Estimate for 2022 earnings per share is pegged at $9.38, suggesting growth of 3.2% from 2021. The consensus mark for 2022 revenues stands at $18.31 billion, indicating an improvement of 7.1% from the previous year.

Stocks to Consider

Some better-ranked stocks in the broader medical space are ShockWave Medical (SWAV - Free Report) , AMN Healthcare Services (AMN - Free Report) and McKesson (MCK - Free Report) . While ShockWave Medical and AMN Healthcare Services sport a Zacks Rank #1 (Strong Buy), McKesson carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Estimates for ShockWave Medical’s earnings per share rose from $2.02 to $2.57 for 2022 and from $2.95 to $3.42 for 2023 in the past 60 days. SWAV has gained 63.4% so far this year.

ShockWave Medical delivered an earnings surprise of 180.14%, on average, in the last four quarters.

Estimates for AMN Healthcare Services have improved from earnings of $10.41 to $11.26 for 2022 and $7.94 to $8.30 for 2023 in the past 60 days. AMN stock has declined 12.8% so far this year.

AMN Healthcare Services delivered an earnings surprise of 15.66%, on average, in the last four quarters.

Estimates for McKesson’s earnings per share increased from $23.26 to $24.25 for fiscal 2023 and $25.41 to $26.04 for fiscal 2024 in the past 60 days. MCK has gained 37.4% so far this year.

McKesson delivered an earnings surprise of 13.00%, on average, in the last four quarters.

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