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Why Is Stryker (SYK) Down 2.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Stryker (SYK). Shares have lost about 2.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Stryker due for a breakout? 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 Earnings and Revenues Miss Estimates in Q1

Stryker Corporation reported first-quarter 2021 adjusted earnings per share of $1.93, which missed the Zacks Consensus Estimate of $1.98 by 2.5%. However, the bottom line improved 4.9% year over year.

Revenue Details

The Michigan-based medical device company reported revenues of $3.95 billion, which lagged the Zacks Consensus Estimate by 0.2%. Nonetheless, the top line increased 10.2% on a year-over-year basis and 8% at constant currency (cc).

Revenues by Geography

Revenues in United States were $2.78 billion, up 5.3% year over year. International sales were up 23.7% to $1.17 billion.

Segmental Analysis

Orthopaedics: In the quarter under review, revenues in the segment totaled $1.48 billion, up 21.4% year over year. The segment’s revenues rose 18.7% at cc. The upside can be attributed to strong performance at the Trauma and Extremities and Other sub segments, and growth in Mako.

MedSurg: This segment reported sales of $1.62 billion, which remained flat on year-over-year basis. Sales at the segment declined 1.6% at cc. Per management, the segment decreased 1.6% organically in the reported quarter.

Neurotechnology and Spine: Sales in the segment amounted to $848 million, up 14% year over year and 11.3% at cc. Organically, the segment witnessed a rise of 11.3%. Per management, the upside can be attributed to double-digit growth in the company’s Interventional spine, neurosurgical and ENT businesses. Also, growth (27%) in Stryker’s neurovascular business contributed to the improvement.

Margins

In the first quarter, adjusted gross profit totaled $2.59 billion, up 10.5% from the year-ago quarter. Adjusted gross margin was 65.4%, up 10 basis points (bps).

Adjusted operating income amounted to $928 million, up 7.7% from the prior-year quarter. Adjusted operating margin was 23.5%, down 50 bps.

Financial Update

The company exited the first quarter with cash and cash equivalents of $2.24 billion, compared with $2.94 billion in the prior quarter.

Net cash provided by operating activities in the first quarter were $452 million, reflecting a decrease of 23.5% from the year-ago period.

2021 Outlook

The company will continue to track and evaluate the impact of the COVID-19 pandemic on its operations and financial results. With the ongoing recovery from the pandemic, Stryker anticipates organic net sales growth between 8% and 10% from that of 2019.

Adjusted EPS is projected in the band of $9.05 to $9.30 (which includes impact of the buyout of Wright Medical for the full year). The Zacks Consensus Estimate for the same is pegged at $9.05. 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Stryker has a nice Growth Score of B, a grade with the same score on the momentum front. 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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