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Stryker Loses 7.6% in a Month: What's Weighing It Down?

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Stryker Corporation (SYK - Free Report) is one of the underperforming companies in the MedTech space. In the past month, the shares of the company have lost 7.6%, compared with the industry’s decline of 7.1%. Challenging global economic conditions, supply side issues, fluctuations in foreign currency exchange rates, and a strengthening U.S. dollar pose major headwinds to Stryker’s top-line growth.

In the past 90 days, the Zacks Consensus Estimate for earnings per share dropped 0.1% to $7.82. Consequently, the company has a Zacks Rank #4 (Sell), which indicates expectations of underperformance in the near term.

Thus, it is right time to offload the stock from your portfolio.

Why Should You Offload?

Falling Margins

In the fourth quarter, adjusted gross margin came in at 66.4%, flat year over year. Per management, gross margin was affected by productivity issues associated with the continued recovery of the Puerto Rico manufacturing facility. Operations in the facility were disrupted, thanks to natural calamities. Further, unfavorable pricing dented margins.

Operating margin in the quarter was 27% of net sales, down 70 basis points from the year-ago quarter.

Declining Demand for Healthcare Products

Stryker is currently facing low demand for healthcare products. In the fourth quarter of 2017, the company’s spine business in the United States witnessed supply issues, which is expected to remain till a larger part of 2018. Global economic conditions in Western Europe are unfavorable at the moment.

Acquisition Perils

For long, Stryker has been following the acquisition strategy. Lately, the company closed the acquisition of Minnesota-based Entellus Medical. Besides enhancing revenue opportunities, it adds to integration risks, putting the margins under pressure. Furthermore, the company is laden with a high debt of $7.2 billion, which might add to the woes.

Key Picks

A few top-ranked stocks in the broader medical sector are BIOHAVEN PHARM (BHVN - Free Report) , Bio-Rad Laboratories, Inc. (BIO - Free Report) and Centene Corporation (CNC - Free Report) . Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks

BIOHAVEN has an expected growth rate of 50% for the current quarter and a growth rate of 42.1% for the next quarter.

Bio-Rad has an expected long-term growth rate of 20% and that for the current year is 42.9%.

Centene has an expected long-term growth rate of 14.4% and that for the current year is 43.1%.

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