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Why Is Stryker (SYK) Up 4.1% Since Its Last Earnings Report?

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It has been about a month since the last earnings report for Stryker Corporation SYK. Shares have added about 4.1% in that time frame.

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

Recent Earnings

Stryker reported first-quarter 2018 adjusted earnings per share (EPS) of $1.68, beating the Zacks Consensus Estimate by 5%. The EPS figure exceeded the high end of the guidance and also increased 13.5% year over year.

The Michigan-based medical device company reported first-quarter revenues of $3.24 billion, beating the Zacks Consensus Estimate of $3.20 billion by a narrow margin. Revenues also increased 9.7% on a year-over-year basis.

Organic sales growth was an impressive 7% and performance in Japan, China, Australia and emerging markets was striking as well.

Segment Details

Orthopaedics

Revenues in this segment came in at $1.22 billion, up 4.7% at cc. The upside can be attributed to the Knees division, which reported sales worth $491 million, up 5% at cc. Moreover, organic net sales in the segment rose 4.7%.

Per management, the flagship Mako Total Knee platform saw a significant year-over-year uptick in new robot installations.

MedSurg

This segment registered revenues of $1.43 billion, up 9.1% at cc. Organic net sales in the segment increased 7.8% despite supply issues related to the company’s Puerto Rico facility ramp-up.

The growth was mainly driven by the sub-segments — Instruments, Endoscopy and Medical. Instruments saw 4.1% growth at cc to $412 million, Endoscopy grew 18.7% to $444 million and Medical rose 7.2% to $511 million.

Per management, the Medical division witnessed U.S. organic growth of 4.8%, driven by strong performance of core bed and power cot products as well as physio business.

Neurotechnology and Spine

Revenues in this segment came in at $598 million, up 13.5% at cc.

Organic net sales in the segment increased 10.1%.

Neurotechnology registered revenues worth $410 million, up 20.8% at cc, while Spine revenues came in at $188 million, up 0.3% at cc.

However, in the reported quarter, the Spine business saw softness as well as low-double digit price declines across core product lines. The segment is also gaining from the recent integration of Entellus Medical.

Geographical Details

Sales in the United States came in at $2.31 billion, up 8.3% at cc.

International sales totaled $927 million, up 8% at cc.

Per management, Stryker performed strongly in Japan, South Pacific and Canada. The company also registered double-digit growth on a year-over-year basis in the emerging markets.

However, the company’s performance in Europe lacked luster in the first quarter.

Margins

In the quarter under review, operating margin expanded 70 basis points (bps) to 25%.

Adjusted gross margin of 66.3% improved nominally from the prior-year quarter. Per management, gross margin was favorably impacted by productivity, efficiency and foreign exchange gains, offset by business mix and price.

Financial Condition

Stryker continues to maintain a strong position with $2.5 billion of cash and marketable securities, of which approximately 55% was held outside the United States. Cash flow in the first quarter was approximately $297 million. Total debt on the balance sheet at the end of the quarter was $7.9 billion.

Guidance

Buoyed by the stellar first-quarter performance, Stryker now expects second-quarter earnings per share within $1.70-$1.75.

Moreover, organic net sales growth in 2018 is expected within 6.5-7% and adjusted net earnings per diluted share in the range of $7.18-$7.25.

Management is also confident of a 30-50 bps improvement in operating margin.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been 11 revisions higher for the current quarter compared to one lower.

Stryker Corporation Price and Consensus

 

Stryker Corporation Price and Consensus | Stryker Corporation Quote

VGM Scores

At this time, SYK has an average Growth Score of C, however its Momentum is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise SYK has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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