Filed Under:
Tickers in this Article: SYK
Investors in a certain global leader in medical equipment have been seen mildly erratic behavior (to put it nicely) from the stock over the better part of a decade.

Shares rose from $40 in 2004 to highs of $75 in 2007 before sinking to $30 in 2009 and rebounding to $50 in 2011. Since then, the stock has steadily risen to its current level near $75.



But while the stock was spinning its wheels over that nine-year period, the company was growing at a good clip. Annual revenue climbed a cumulative 29% between 2009 and 2012, to $8.7 billion. Net earnings jumped 17% in that time, to $1.3 billion.

Last month, Stryker (NYSE: SYK) delivered rather uneven third-quarter numbers: Revenue rose 4.8% from a year ago, to $2.2 billion, but earnings fell more than 70%.

The revenue boost came from a revival in Stryker's largest division, specifically in orthopedic implants used in hip and knee joint replacements. This division grew 9% in the third quarter, one of its strongest performances in some time. Most of the dip in earnings can be attributed to litigation related to a recall of Stryker's ABG II and Rejuvenate hip implants (ranging from $700 million to $1.1 billion) last year. Excluding that lump sum, earnings rose 1%.

Except for a few rough patches, Stryker's been riding a wave of momentum good enough for a 32% year to date gain -- and it hasn't yet begun to crest. It's all coming together for this $25 billion provider of surgical tools and neurotechnology, despite ongoing criticism about a series of expensive acquisitions (the other component of Stryker's third-quarter dip in earnings).

Stryker's most recent purchase: a $1.65 billion deal for MAKO Surgical (Nasdaq: MAKO), a pioneer in robot-assisted orthopedic surgery with its RIO systems and Restoris implants. Considered a long-term bet on the robotics industry, the acquisition gives Stryker new product lines that it can market through its broad distribution network. The deal may position Stryker to compete with Intuitive Surgical (Nasdaq: ISRG), famed for its da Vinci surgical robot.  

Before its purchase of MAKO, Stryker acquired Boston Scientific's (NYSE: BSX) neurovascular unit for $1.5 billion, which provided inroads into a thriving market in devices to treat strokes. It also gobbled up orthobiologic and biosurgery products maker Orthovita for $316 million, and China-based Trauson Holdings, a competitor of Stryker's spine segment, for $685 million to build its business overseas.

So Stryker has been busy in recent years shoring up various industry positions, adding to its product lines and building a presence overseas. The strategy appears to be paying off: Analysts expect earnings growth of 8.5% next year and for the next five years as well.

Risks to Consider: Stryker can ill afford any more product recalls, which could damage its reputation beyond repair and scare away customers and investors. The company also faces stiff competition from Smith & Nephew (NYSE: SNN) and Johnson & Johnson (NYSE: JNJ) in an industry challenged by falling prices.

Actions to Take --> Everything about this stock screams "long term." An aging population will help drive the need for knee and hip replacements in the not-too-distant future. Stryker's string of acquisitions is set to begin paying off; the question is, how soon? At about $75 a share, STk is expected to rise single digits in 2014.

comments powered by Disqus

Trading Center