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Stryker (SYK) Down 5.6% 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 5.6% 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 Q3 Earnings Meet Estimates, Revenues Beat

Stryker Corporation reported third-quarter 2019 adjusted earnings per share of $1.91, which came in line with the Zacks Consensus Estimate. However, the bottom line improved 13% year over year and was at the high end of the company’s guidance range.

The Michigan-based medical device company reported revenues of $3.59 billion, which outpaced the Zacks Consensus Estimate by 0.2%. Revenues increased 10.6% on a year-over-year basis and 11.5% at constant currency (cc).

The company delivered organic growth of more than 8.6% in the quarter under review, which helped it sustain the multi-year momentum across businesses and regions.

Revenues by Geography

Revenues in United States came in at $2.64 billion, up 11.1% year over year. International sales were up 9.5% to $943 million.

U.S. organic sales improved 8% and international organic sales came in at 12%. While solid performance across Orthopaedics, MedSurg and Neurotechnology segments drove growth in the United States, robust gains in emerging markets, Europe, Japan and Canada led to higher international organic sales.

Segmental Analysis

Orthopaedic: In the quarter under review, revenues in the segment totaled $1.26 billion, up 7.8% year over year. The segment’s revenues improved 8.8% at cc. The performance can be attributed to better results at the Knee and Hips sub segments. The company continues to witness solid demand for Mako TKA (Total Knee Arthoplasty) platform or cementless knee and other 3D printed products and shoulder implants.

MedSurg: This segment reported sales of $1.58 billion, up 9.2% year over year. Sales at the segment increased 10% at cc. Per management, the segment improved 11.5% organically in the reported quarter, led by strong Endoscopy, Instruments and Medical performances.

Neurotechnology & Spine: Sales in the segment grossed $749 million, up 19.4% year over year and 20.2% at cc. Organically, the segment witnessed growth of 7.4%. Per management, the upside was driven by solid performance in Neurotech and Interventional Spine businesses, offset by somewhat weak performance at the company’s core spine business.

Margins

In the third quarter, gross profit totaled $2.33 billion, up 8.1% from the year-ago quarter. Adjusted gross margin was 65.7%, down 50 bps.

Operating income totaled $628 million, up 9% from the prior-year quarter. Adjusted operating margin 25.4%, up 50 bps.

Financial Update

Cash and cash equivalents came in at $1.94 billion, up 11.1% sequentially.

Cash flow from operating activities as of Sep 30, 2019, came in at $1.46 billion, down 6.9% from the year-ago period.

2019 Outlook

Based on the performance to date and expected strength in the balance of the year, the company now expects the following:

Stryker expects 2019 organic net sales growth to be toward the higher end of the previously guided range of 7.5-8%.

On a full-year basis, adjusted EPS is expected in the band of $8.20 to $8.25.
The Zacks Consensus Estimate is pegged at $8.21, within the company’s guided range.

For the fourth quarter of 2019, adjusted EPS is anticipated within $2.43 and $2.48. The Zacks Consensus Estimate stands at $2.45, within the company’s projected range.

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 an average Growth Score of C, however its Momentum Score is doing a bit better with a B. 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 C. 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 looks promising. It comes with little surprise Stryker has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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