On May 16, we retained Stryker Corp. (SYK) at Neutral, following its first-quarter results. Stryker’s reported solid sales in the U.S. but international markets, especially Europe, still remain weak.
Why the Retention?
On Apr 24, Stryker posted first-quarter 2013 adjusted earnings per share of $1.03, which were 2 cents above the Zacks Consensus Estimate. It transcended the year-ago earnings by 4%. Revenues inched up 1.3% (2.6% in constant currency) year over year to $2,190 million but missed the Zacks Consensus Estimate of $2,207 million.
The company’s earnings have managed to beat the Zacks Consensus Estimate in 2 out of the last 4 quarters, with an average surprise of 0.61%. It met the Zacks Consensus Estimate in the second quarter of 2012 but missed it in the subsequent third quarter. Following the earnings release, the Zacks Consensus Estimate for 2013 and 2014 dropped 0.7% and 0.4% to $4.30 and $4.67, respectively.
Stryker is one of the world’s largest orthopedic companies and we believe that it should benefit from new product launches, expansion into emerging markets, cost control measures and increasing operating efficiency. In the first quarter, it completed the acquisition of Trauson Holdings to gain access to the large value-oriented orthopedic market in China.
However, Stryker remains challenged by the inconsistency in the international markets, global capital-spending environment, pricing pressure along with currency fluctuation and intense competition. Additionally, a series of product recalls is adversely affecting some of its key segments.
Other Stocks to Consider
Stryker has a Zacks Rank #3 (Hold). While we remain on the sidelines regarding SYK, medical stocks such as Conceptus ( CPTS), Myriad Genetics ( MYGN) and AtriCure ( ATRC) warrant a look. While Conceptus and Myriad carry a Zacks Rank #1 (Strong Buy), ATRC carries a Zacks Rank #2 (Buy).
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