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Must-know: Stryker’s stock faces significant risk ahead

Amritpal Khalsa

Must-know: Expect lots of volatility for Stryker's stock (Part 2 of 2)

(Continued from Part 1)

MAKO purchase

Stryker (SYK) recently announced a takeover of MAKO Surgical Corp. (MAKO) for $1.65 billion. MAKO is a robotics manufacturer with technology used in knee and hip replacement surgeries. Stryker believes the takeover better positions itself in the industry and will improve its outcomes, improving surgeon experience.

The financial industry has criticized the takeover with an 86% purchase premium. Stryker’s stock fell 2.8% when it announced the MAKO takeover. Stryker’s CEO responded to this criticism by saying the company stands by the price point and citing enormous potential for the business while providing strategic diversification for the organization.

Pricing pressure

Stryker has received significant scrutiny over its lack of transparency in pricing. Stryker maintains that the allegations are unfair—that pricing may have been obscure in the past but that now its price band is very compressed. Today, the device is usually 25% less than the procedure.

Rookie CEO

Stryker recently replaced its CEO following a romantic affair with a former company employee. Rookie Kevin Lobo is now at the helm, coming from Johnson & Johnson (JNJ). In an interview, Lobo admitted that the designation of CEO came much earlier than he had planned. He also explained that the most challenging role in his duties is dealing with the demands of investors, analysts, employees, and the media.

Rocky road ahead

The road ahead for Stryker looks very rocky. Expect significant volatility as Stryker continues its takeover of MAKO and deals with a tough regulatory environment. Opportunities include the potential of its knee business and demand from Obamacare.

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