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Stryker (SYK) Up 0.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Stryker (SYK). Shares have added about 0.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Stryker due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Stryker Q2 Earnings and Revenues Surpass Estimates

Stryker Corporation delivered second-quarter 2019 adjusted earnings per share (EPS) of $1.98, beating the Zacks Consensus Estimate by 2.6%. The bottom line improved 12.5% year over year and exceeded the high end of the company’s guidance range.

The Michigan-based medical device company reported revenues of $3.65 billion, which surpassed the Zacks Consensus Estimate by 1.4%. Revenues increased 9.9% on a year-over-year basis and 11.5% at constant currency (cc).

The company delivered organic growth of more than 8.5% in the quarter under review, which helped it sustain the multi-year momentum across its businesses and regions.

Revenues by Geography

Revenues in United States came in at $2.69 billion, up 13% year over year. International sales were up 1.9% to $955 million.

U.S. organic sales grew 9.3% and international organic sales came in at 6.5%. While solid performance across Orthopaedics, MedSurg and Neurotechnology segments drove growth in the United States, robust gains in emerging markets, Europe and Australia were responsible for the higher international organic sales.

Segmental Analysis

Orthopaedic: In the quarter under review, revenues in the segment totaled $1.27 billion, up 3.7% year over year. The segment’s revenues improved 5.6% at cc. The performance can be attributed to better results at the Knee and Hips sub segments. The company continues to witness solid demand for Mako TKA (Total Knee Arthoplasty) platform or cementless knee and other 3D printed products and shoulder implants.

MedSurg: This segment reported sales of $1.62 billion, up 11.1% year over year. Sales at the segment increased 12.5% at cc. Per management, the segment grew 11.5% organically in the reported quarter, led by strong Endoscopy, Instruments and Medical performances.

Neurotechnology & Spine: Sales in the segment grossed $760 million, up 18.9% year over year and 20.8% at cc. Organically, the segment witnessed growth of 7.4%. Per management, the upside was driven by sustained solid demand for Neurotech products, partially offset by somewhat lower spine organic growth owing to the company’s focus on integrating its legacy Spine business with K2M.

Margins

In the second quarter, gross profit totaled $2.38 billion, 8.7% from the year-ago quarter. Adjusted gross margin was 65.8%, down 30 bps.

Operating income totaled $613 million, down 8.8% from the prior-year quarter. Adjusted operating margin 25.9%, up 20 bps.

Financial Update

Cash and cash equivalents came in at $1.75 billion, plunging 51.5% from the 2018-end level.

Cash flow from operating activities as of June 30, 2019, came in at $827 million, down 12.6% from the year-ago period.

2019 Outlook

Based on the second-quarter performance the company now expects the following:

Stryker expects 2019 organic net sales growth in the range of 7.5-8%.

On a full-year basis, adjusted EPS is expected in the band of $8.15 to $8.25. The Zacks Consensus Estimate is pegged at $8.15, within the company’s guided range.

For the third quarter of 2019, adjusted EPS is anticipated within $1.87 and $1.92. The Zacks Consensus Estimate stands at $1.90, within the company’s projected range.

How Have Estimates Been Moving Since Then?

Estimates review followed an upward path over the past two months.

VGM Scores

At this time, Stryker has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Stryker has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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