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Will Core MedSurg Segment Aid Stryker's (SYK) Q4 Earnings?

Zacks Equity Research

Stryker Corporation’s SYK fourth-quarter 2018 results, scheduled for release on Jan 29, after market close, are likely to gain from a strong show by the core MedSurg segment. A strong 2018 view also buoys optimism.

Q3 Results at a Glance

In the last reported quarter, Stryker delivered adjusted earnings per share of $1.69, which beat the Zacks Consensus Estimate by a penny. Earnings improved 11.2% year over year and were within the company’s guidance.

The company reported revenues of $3.24 billion, missing the Zacks Consensus Estimate of $3.26 billion by a narrow margin. Revenues increased 7.9% on a year-over-year basis.

Stryker has a positive average surprise of 2% for the trailing four quarters.

Which Way Are Estimates Treading?

The Zacks Consensus Estimate for fourth-quarter earnings per share is pegged at $2.15, reflecting year-over-year growth of 9.7%.
The same for revenues is pinned at $3.73 billion, showing growth of 7.6% over the prior-year quarter.

Stryker Corporation Price and EPS Surprise

 

Stryker Corporation Price and EPS Surprise | Stryker Corporation Quote

Let’s see how things are shaping up before the earnings results.

MedSurg in Focus

This segment consists of surgical instruments, endoscopic and emergency medical equipment and has been consistently driving Stryker’s top line.

In the last reported quarter, the unit contributed a significant 44.4% to Stryker’s net sales. Revenues in the segment came in at $1.44 billion, up 10.4% at constant currency (cc).

It is encouraging to note that, for the quarter to be reported, the Zacks Consensus Estimate for the segment’s revenues stands at $1.69 billion, up 7.2% year over year.

MedSurg has three subsegments — Endoscopy, Instruments and Medical.

The Zacks Consensus Estimate for Endoscopy revenues is pegged at $505 million, up 7.7% year over year. The same for Instruments revenues stands at $533 million, showing a year-over-year rise of 9.2%. Moreover, for MedSurg Medical revenues, the consensus estimate is pinned at $590 million, up 6.1% on a year-over-year basis.

Other Factors at Play

Strong Guidance

For the fourth quarter of 2018, earnings are projected within $2.13 to $2.18.

In fact, for 2018, Stryker projects earnings in the range of $7.25-$7.30, higher than the previous guidance of $7.22-$7.27. The Zacks Consensus Estimate for earnings is pegged at $7.28, within the guided range.

Orthopaedic Implant, Neurotechnology & Spine to Drive Growth

In the last reported quarter, Stryker’s core Orthopaedic segment contributed 36.1% to net sales. For the quarter to be reported, the Zacks Consensus Estimate for the segment’s sales is pegged at $1.36 billion, showing a year-over-year rise of 3.8%.

Meanwhile, Neurotechnology & Spine accounted for 19.4% of Stryker’s revenues in the last reported quarter. For the quarter to be reported, the Zacks Consensus Estimate for the segment’s sales stands at $677 million, showing year-over-year growth of 15.5%.

Acquisition Risks

Stryker has lately been on an acquisition spree.

Last November, the company completed a previously-announced acquisition of K2M Group Holdings and in October, it acquired Invuity. While this improves revenue opportunities, it adds to integration risks and also exerts pressure on gross and operating margins.

What Does Our Model Say?

Per our proven model, a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive earnings surprise in the quarter. This is not the case here as you will see below.

Earnings ESP: Stryker has an Earnings ESP of -0.21%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Stryker carries a Zacks Rank #3.

Please note that we caution against stocks with a Zacks Rank #4 (Sell) or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revision.

Stocks Worth a Look

Here are a few medical stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

PerkinElmer PKI has an Earnings ESP of +0.77% and a Zacks Rank #3.

Baxter International BAX has an Earnings ESP of +1.83% and a Zacks Rank #3.

DexCom DXCM has an Earnings ESP of +8.81% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

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