Medical device firm Stryker (NYSE:SYK) reported first quarter results earlier on the week that proved its underlying businesses remain sound and steady. It isn't growing like it used to, but its stock has been unduly punished for the more modest trends.
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First Quarter Recap
Net sales advanced 7.2% to $2.2 billion. Growth backing out currency fluctuations was similar at 7.4% and consisted of surprisingly strong U.S. growth of 8.2% and international growth of 6.1%. By product segment, the reconstructive units, which consist of the flagship hip, knee and related joint replacements, improved 5.2%. Medical and surgical sales were stronger at 7.9% while neurotechnology and spine sales were even stronger at 12.4%, though this last unit was the smallest contributor to sales at less than 18%.

Operating income improved 12.5% to $476 million and was due to modest sales cost increases. Modest tax expense growth helped boost net income by 14% to $350 million, while share buybacks boosted earnings per diluted share by 16.7% to 91 cents.

SEE: A Breakdown Of Stock Buybacks

Outlook and Valuation
On a constant currency basis, management projects full year sales growth of between 3.5 and 6.5%. It expects to be able to leverage this into double-digit earnings growth. Analysts expect earnings of $4.11 per share. Based on a current share price of $54, this represents a forward P/E of 12.

SEE: 5 Must-Have Metrics For Value Investors

The Bottom Line
Over the past few years, Stryker's operations have grown modestly but respectably. Over the past three years, sales and earnings are up slightly greater than 7% annually. This is actually quite impressive given overall economic growth has been about flat across the globe since the credit crisis. But this is still well below the double digit growth investors came to expect in previous years. Growth trends had been quite impressive earlier in the decade and mean the 10-year annual growth averages are firmly in the low and mid double digits.

Despite the solid operating trends, Stryker's stock is down about 17% since 2007. Rivals including Zimmer (NYSE:ZMH) and heart-related medical device firms Medtronic (NYSE:MDT) and Boston Scientific (NYSE:BSX) are down even more sharply. Only Smith & Nephew (NYSE:SNN) has been able to tread water, which is about the same for the market as a whole. Overall, there is little reason to panic, as the stock should eventually follow the underlying fundamentals of Stryker's business, which appear quite sound.

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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.

Tickers in this Article: SYK, ZMH, SNN, MDT, BSX

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