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Will Core Segmental Growth Aid Stryker (SYK) in Q1 Earnings?

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Stryker Corporation’s SYK first-quarter 2018 results are scheduled for release on Apr 26, after market close. The company’s acquisition-driven strategy is expected to boost growth by expanding existing product offerings in all business segments.

We expect the company to witness steady growth in Orthopaedic Implant sales — one of the major revenue components. While this is projected to drive first-quarter 2018 earnings, an expected improvement in revenues in other segments, especially MedSurg, will help the company generate impressive results.

Notably, last quarter, Stryker posted earnings of $1.96 per share, which beat the Zacks Consensus Estimate by a penny.

For the current quarter, the Zacks Consensus Estimate for revenues is pegged at $3.20 billion, reflecting a rise of 8.2% year over year. The Zacks Consensus Estimate for earnings is pegged at $1.60, indicating an increase of 8.1% year over year.

Let’s delve into other factors which are likely to impact Skryker’s first-quarter 2018 results.

Orthopaedic Implant in Focus – Mako Robots

Orthopaedic Implant contributed 62.5% of net revenues in the last quarter. The Zacks Consensus Estimate for Orthopaedic Implant stands at $1.21 billion, reflecting a rise of 6.3% year over year.

Recently, Stryker introduced the robotic-arm assisted total knee arthroplasty application for use with its Mako System. Notably, this is the first and only robotic technology which can be used for total knee, hip and partial knee replacement procedures.

Notably, Mako Total Knee utilizes Stryker’s robotic platform and its Triathlon Total Knee System, guided through CT-based 3D modeling of bone anatomy. Per Stryker, the system enables intra-operative planning and assists in bone resectioning procedures.

In the fourth quarter of 2017, the Mako Total Knee platform drove Stryker’s earnings. Mako robot installations totaled 35 globally, with 27 in the United States. Additionally, the company had its first robot sale in Japan, where the approval for Mako is expected by the end of 2018.

The company exited 2017 with 372 Mako robots installed in the United States.

Stryker Corporation Price and Consensus


Stryker Corporation Price and Consensus | Stryker Corporation Quote

Other Factors at Play

MedSurg Unit to Drive Growth

MedSurg Equipment products include surgical equipment; surgical navigation systems; endoscopic, communications and digital imaging systems as well as patient handling and emergency medical equipment.

In the last quarter, management announced MedSurg as a high-growth segment.

The Zacks Consensus Estimate for MedSurg-Endoscopy revenues surged 12.6% year over year to $420 million.

Acquisition-Driven Strategy

Stryker has been following an acquisition-driven strategy to drive growth. Recently, Stryker acquired Entellus Medical, Inc. in an all cash transaction for $24 per share or an equity value of approximately $662 million. This will enable physicians to conveniently perform a broad range of ENT procedures.

Of late, Stryker acquired VEXIM, which specializes in the development and sale of vertebral compression fracture solutions for €183 million. VEXIM's flagship product is the SpineJack system, a mechanical expandable VCF implant for fracture reduction and stabilization. VEXIM's portfolio is highly complementary to the interventional spine business of Stryker.

Stryker's Instruments division includes an extensive and innovative portfolio for vertebral augmentation, vertebroplasty and radiofrequency ablation procedures along with a diagnostic tool and decompression treatment advances for contained disc herniations.

Lower Demand for Healthcare Products

Stryker persistently faces challenges from lower demand for health care products. Additionally, the company’s spine business in the United States was plagued with supply issues in fourth-quarter 2017. In fact, Stryker expects to face these headwinds in the to-be-reported quarter.

The company has been facing challenging economic conditions, particularly in the United States and Western Europe. Additionally, lower reimbursements for medical products and services may impose a downward pressure on the prices for the company’s products, longer sales cycles and slower adoption of new technologies, which will ultimately impact the top line.

What Our Model Predicts

Our quantitative model predicts an earnings beat for Stryker this quarter.

This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. It can be illustrated below:

Zacks ESP: Earnings ESP for Stryker is +0.35%. 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. A favorable Zacks Rank increases the predictive power of ESP and the company’s positive ESP makes surprise prediction feasible.

Other Stocks Worth a Look

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

Bio-Rad Laboratories BIO has an Earnings ESP of +20.43% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cardinal Heath CAH has an Earnings ESP of +0.33% and a Zacks Rank #2.

Abbott Laboratories ABT has an Earnings ESP of +0.75% and a Zacks Rank #3.

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