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Why health insurance exchanges will affect Stryker’s stock

Amritpal Khalsa

Must-know: Expect lots of volatility for Stryker's stock (Part 1 of 2)

Health insurance exchanges

The start of Obamacare’s new health insurance exchanges marks the start of a period of volatility for Stryker. Stryker Corporation (SYK) is a top medical device manufacturer with sales of $8.65 billion in 2012. The flood of insurees coming from exchanges is expected to raise the demand for Stryker products, but the company also faces the excise tax—a measure it has vigorously lobbied against.

According to Stryker’s CEO, the manufacturer plans to leverage the increased demand in its hospital bed business. Under Obamacare, a hospital’s Medicare reimbursement is driven by overall patient satisfaction. Styker maintains that a large part of a patient’s satisfaction is their experience in their hospital bed. Stryker develops state-of-the-art hospital beds (that even detect movement and send the information to nurses nearby), and it expects the division to flourish.

It also believes knee replacements will be another area of business that will flourish from the influx of new insurees. The procedure is relatively more elective, and the manufacturer is optimistic that an increase of covered patients will lead to an increase of patients electing the surgery.

Medical device excise tax

Stryker maintains a very negative stance toward the medical device excise tax and claims it will continue fighting the tax in the near future. The tax represents roughly $100 million a year (approximately 20% of the company’s research and development budget). Noticeably, the tax is a large burden for the company, stifling innovation. According to Stryker’s CEO, the tax disproportionately hurts the company versus its competitors—think Boston Scientific (BSX), Medtronic (MDT), and Covidien (COV) because 65% of Stryker sales are in the US.

Continue to Part 2

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