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Will Core Segmental Growth Aid Stryker (SYK) in Q2 Earnings?

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Stryker Corporation’s SYK second-quarter 2018 results are scheduled for release on Jul 24, after market close. The company’s acquisition-driven strategy is expected to boost growth by expanding product offerings across all segments.

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

Notably, in the last reported quarter, Stryker posted earnings of $1.68, beating the Zacks Consensus Estimate by 5%.

For the quarter to be reported, the Zacks Consensus Estimate for revenues is pegged at $3.32 billion, reflecting a rise of 10.2% year over year. The Zacks Consensus Estimate for earnings is pinned at $1.73, indicating a year-over-year increase of 13.1%.

Stryker Corporation Price and EPS Surprise

Stryker Corporation Price and EPS Surprise | Stryker Corporation Quote

Orthopaedic Implant in Focus

Orthopaedic Implant contributed 37.7% to net revenues in the last reported quarter. In the last reported quarter, revenues at the segment were up 5% organically. The upside can be attributed to a significant year-over-year increase in Mako robot installations. The coveted Mako platform also recorded strong performances in Japan, South Pacific and Canada. Globally, Stryker installed 28 Mako robots, of which 24 were in the United States.

The Zacks Consensus Estimate for Orthopaedic Implant for the quarter to be reported is at $1.23 billion, reflecting a rise of 8.1% year over year.

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 reported quarter, the segment accounted for 44.1% of the company’s net sales. Revenues in the segment grew 9.1% at constant currency (cc) to $1.43 billion.

Moreover, the Zacks Consensus Estimate for MedSurg equipment revenues is pegged at $1.48 billion, reflecting year-over-year growth of 10.4%.

Domestic & International Revenues

Stryker is well balanced on its high domestic and international revenues.

In the last reported quarter, domestic revenues accounted for a significant 71.3% of net sales. Meanwhile, international sales accounted for 28.6% of total revenues.

The Zacks Consensus Estimate for Stryker’s domestic sales is pinned at $2.39 billion, up 8.7% year over year. The same for international revenues stands at $920 million, up 13.4% year over year.

Acquisitions

Stryker completed the buyout of Entellus Medical for $662 million. Entellus is integrated within Stryker’s core Neurotechnology & Spine segment. This will enable physicians to conveniently perform a broad range of ENT procedures. However, the acquisition is expected be dilutive initially to Stryker’s 2018 adjusted earnings per share by approximately 4 cents. This is likely to affect the top line in the quarter to be reported. (Read More: Stryker Closes Entellus Buyout, Bolsters Neurotechnology Line)

Stryker was lately in news for making an offer to take over Massachusetts-based Boston Scientific Corporation BSX. However, no further terms of the deal have been revealed by Stryker. Stryker also signed an agreement to acquire SafeAir AG, a Swiss medical device company recently.

What Our Model Predicts

Our quantitative model does not predict 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:

Earnings ESP: Earnings ESP for Stryker is 0.00%. 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 #2.

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.

Varian Medical VAR has an Earnings ESP of +1.08%. The stock carries a Zacks Rank #3.You can see  the complete list of today’s Zacks #1 Rank stocks here.

McKesson Corporation MCK has an Earnings ESP of +3.95%. The stock carries a Zacks Rank #3.

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