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Why Is Stryker Corp (SYK) Up 5% Since the Last Earnings Report?
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A month has gone by since the last earnings report for Stryker Corporation (SYK - Free Report) . Shares have added about 5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? 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 drivers.
Maintaining its streak of positive earnings surprises, Kalamazoo, MI-based medical technology company Stryker Corp (SYK - Free Report) reported adjusted earnings of $1.78 per share in the fourth quarter of 2016, which comfortably beat the Zacks Consensus Estimate by $0.02 and improved 14.1% from the year-ago quarter. Notably, the adjusted earnings figure was within management’s guided range.
Meanwhile, over the last four trailing quarters, the company posted earnings beats, the average being 1.9%.
The upside in earnings was primarily driven by a 16.3% rise in revenues to $3.157 billion, which marginally beat the Zacks Consensus Estimate of $3.152 billion. At constant currency (cc), net sales improved 16.8% from the year-ago quarter.
Coming to full-year results, Stryker registered net sales of $11.3 billion, which increased 14.3% at cc. Meanwhile, adjusted net earnings of $5.80 rose 13.3% year over year.
The major segments of Stryker are Orthopedics (accounting for 38.9% of net sales), Medsurg (43.3%) and Neurotechnology & Spine (17.6%). All the segments recorded year-over-year growth of 5.1%, 26.3% and 9.8%, respectively, at cc.
Segment Details
MAKO results in the quarter were solid, with almost 32 global installations of robots, of which 24 were in the U.S. For the full year, MAKO installations were 86, implying an increase of 14 robots on a year-over-year basis. Additionally, the acquisitions of Sage Products and Physio-Control added $258 million and $740 million to the company’s net sales in the quarter and full year, respectively.
Organic sales growth was 6.7% in the quarter, with U.S. sales increasing 6.3%, courtesy of solid performances by MedSurg and Neurotech. International segments posted growth of 7.7% on strong momentum in Europe and a return to growth in emerging markets (China).
Management expects strong performance in Europe, Canada and Australia. For the full year, the company witnessed growth of 6.4% organically, which was at the upper end of the previously provided guidance of 6% to 6.5%.
Orthopedic– Sales increased 5.3% at cc to $1.2 billion, driven by a 5.7% rise in ‘Knees’ sales and 8.4% growth in ‘Trauma & Extremities’.
The growth in the platform was buoyed by solid demand for the company’s 3D printed products, Foot and Ankle portfolio and strong performance in its European business. Notably, the platform gained 3.9% organically and 4.8% at cc. Solid procedure growth in both partial knees and hips using MAKO was also encouraging.
MedSurg– Sales surged 32.1% at cc to $1.4 billion. Excluding the impact of acquisitions, MedSurg posted organic growth of 8.3%. The growth was fueled by a 7.4% increase in the sale of instruments in the U.S., courtesy of the recent Neptune 3 launch in the platform.
Coming to Endoscopy, this platform delivered U.S. organic growth of 5.9%, thanks to its solid portfolio which includes video products, the latest generation 1588 AIM camera generation platform and other communications and light products.
The Medical division at MedSurg primarily benefitted from double-digit growth of core bed and power cot products.
Internationally, MedSurg organic sales growth was 11.4% in the quarter, driven by strong European and Australian sales.
Neurotechnology and Spine– Segmental sales increased 8.6% at cc to $526 million, primarily owing to an 11.4% rise in Neurotechnology sales, which include neurovascular, CMF and NSE.
Internationally, neurotechnology and spine had cc and organic growth of 11.6%, supported by solid performances in the markets of Europe and Asia.
However, the spine section of the business segment has been grappling with supply issues for long. However, management noted solid demand for its newer 3D printed Tritanium products.
Margins
Adjusted gross margin in the quarter was 66.3%, down 90 basis points (bps) on a year-over-year basis, thanks to acquisitions and foreign currency exchange.
Research and development (R&D) expenses accounted for 6% of net sales, as the company continues to invest in internal innovation.
SG&A expenses for the fourth quarter, as a percentage of revenues, expanded 110 bps to 32.6% on a year-over-year basis, primarily due to sales mix, recent acquisitions and operating efficiencies.
Notably, operating margin accounted for 38.6% of revenues, increasing 100 bps on a year-over-year basis. Strong operating performance was offset by business mix, pricing and foreign exchange in the quarter.
Guidance
For the first quarter of 2017, Stryker expects adjusted earnings in the range of $1.40–$1.45 per share. For the full year, the company expects adjusted earnings in the band of $6.35 to $6.45.
An unfavorable foreign exchange rate is expected to impact the first quarter and full-year net sales by roughly 1.0%. Furthermore, foreign exchange volatility will affect the adjusted earnings per share by approximately $0.03 to $0.04 in the first quarter and $0.10 to $0.12 in the full year.
Stryker expects organic sales growth of 5.5% to 6.5% for full-year 2017.
The company projects adjusted effective tax rate in the range of 16.5% to 17.5% for the full year. Additionally capital expenditures are expected to be roughly $450 million.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to two lower. While looking back an additional 30 days, we can see even more upward momentum. There has been four upward revisions in the last two months.
At this time, Stryker Corp's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. 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 aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
While estimates have been broadly trending upward for the stock, the magnitude of these revisions has been net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stockin the next few months.
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Why Is Stryker Corp (SYK) Up 5% Since the Last Earnings Report?
A month has gone by since the last earnings report for Stryker Corporation (SYK - Free Report) . Shares have added about 5% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? 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 drivers.
Stryker (SYK - Free Report) Beats Q4 Earnings, Provides FY17 Guidance
Maintaining its streak of positive earnings surprises, Kalamazoo, MI-based medical technology company Stryker Corp (SYK - Free Report) reported adjusted earnings of $1.78 per share in the fourth quarter of 2016, which comfortably beat the Zacks Consensus Estimate by $0.02 and improved 14.1% from the year-ago quarter. Notably, the adjusted earnings figure was within management’s guided range.
Meanwhile, over the last four trailing quarters, the company posted earnings beats, the average being 1.9%.
The upside in earnings was primarily driven by a 16.3% rise in revenues to $3.157 billion, which marginally beat the Zacks Consensus Estimate of $3.152 billion. At constant currency (cc), net sales improved 16.8% from the year-ago quarter.
Coming to full-year results, Stryker registered net sales of $11.3 billion, which increased 14.3% at cc. Meanwhile, adjusted net earnings of $5.80 rose 13.3% year over year.
The major segments of Stryker are Orthopedics (accounting for 38.9% of net sales), Medsurg (43.3%) and Neurotechnology & Spine (17.6%). All the segments recorded year-over-year growth of 5.1%, 26.3% and 9.8%, respectively, at cc.
Segment Details
MAKO results in the quarter were solid, with almost 32 global installations of robots, of which 24 were in the U.S. For the full year, MAKO installations were 86, implying an increase of 14 robots on a year-over-year basis. Additionally, the acquisitions of Sage Products and Physio-Control added $258 million and $740 million to the company’s net sales in the quarter and full year, respectively.
Organic sales growth was 6.7% in the quarter, with U.S. sales increasing 6.3%, courtesy of solid performances by MedSurg and Neurotech. International segments posted growth of 7.7% on strong momentum in Europe and a return to growth in emerging markets (China).
Management expects strong performance in Europe, Canada and Australia. For the full year, the company witnessed growth of 6.4% organically, which was at the upper end of the previously provided guidance of 6% to 6.5%.
Orthopedic– Sales increased 5.3% at cc to $1.2 billion, driven by a 5.7% rise in ‘Knees’ sales and 8.4% growth in ‘Trauma & Extremities’.
The growth in the platform was buoyed by solid demand for the company’s 3D printed products, Foot and Ankle portfolio and strong performance in its European business. Notably, the platform gained 3.9% organically and 4.8% at cc. Solid procedure growth in both partial knees and hips using MAKO was also encouraging.
MedSurg– Sales surged 32.1% at cc to $1.4 billion. Excluding the impact of acquisitions, MedSurg posted organic growth of 8.3%. The growth was fueled by a 7.4% increase in the sale of instruments in the U.S., courtesy of the recent Neptune 3 launch in the platform.
Coming to Endoscopy, this platform delivered U.S. organic growth of 5.9%, thanks to its solid portfolio which includes video products, the latest generation 1588 AIM camera generation platform and other communications and light products.
The Medical division at MedSurg primarily benefitted from double-digit growth of core bed and power cot products.
Internationally, MedSurg organic sales growth was 11.4% in the quarter, driven by strong European and Australian sales.
Neurotechnology and Spine– Segmental sales increased 8.6% at cc to $526 million, primarily owing to an 11.4% rise in Neurotechnology sales, which include neurovascular, CMF and NSE.
Internationally, neurotechnology and spine had cc and organic growth of 11.6%, supported by solid performances in the markets of Europe and Asia.
However, the spine section of the business segment has been grappling with supply issues for long. However, management noted solid demand for its newer 3D printed Tritanium products.
Margins
Adjusted gross margin in the quarter was 66.3%, down 90 basis points (bps) on a year-over-year basis, thanks to acquisitions and foreign currency exchange.
Research and development (R&D) expenses accounted for 6% of net sales, as the company continues to invest in internal innovation.
SG&A expenses for the fourth quarter, as a percentage of revenues, expanded 110 bps to 32.6% on a year-over-year basis, primarily due to sales mix, recent acquisitions and operating efficiencies.
Notably, operating margin accounted for 38.6% of revenues, increasing 100 bps on a year-over-year basis. Strong operating performance was offset by business mix, pricing and foreign exchange in the quarter.
Guidance
For the first quarter of 2017, Stryker expects adjusted earnings in the range of $1.40–$1.45 per share. For the full year, the company expects adjusted earnings in the band of $6.35 to $6.45.
An unfavorable foreign exchange rate is expected to impact the first quarter and full-year net sales by roughly 1.0%. Furthermore, foreign exchange volatility will affect the adjusted earnings per share by approximately $0.03 to $0.04 in the first quarter and $0.10 to $0.12 in the full year.
Stryker expects organic sales growth of 5.5% to 6.5% for full-year 2017.
The company projects adjusted effective tax rate in the range of 16.5% to 17.5% for the full year. Additionally capital expenditures are expected to be roughly $450 million.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been four revisions higher for the current quarter compared to two lower. While looking back an additional 30 days, we can see even more upward momentum. There has been four upward revisions in the last two months.
Stryker Corporation Price and Consensus
Stryker Corporation Price and Consensus | Stryker Corporation Quote
VGM Scores
At this time, Stryker Corp's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. 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 aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
While estimates have been broadly trending upward for the stock, the magnitude of these revisions has been net zero. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stockin the next few months.