It has been about a month since the last earnings report for Stryker (SYK). Shares have lost about 4.3% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Stryker Q4 Earnings and Revenues Surpass Estimates
Stryker Corporation reported fourth-quarter 2019 adjusted earnings per share of $2.49, which beat the Zacks Consensus Estimate by 1.2%. Further, the bottom line improved 14.2% year over year and exceeded the high end of management’s guidance range.
The Michigan-based medical device company reported revenues of $4.13 billion, which outpaced the Zacks Consensus Estimate by 0.7%. Revenues improved 8.8% on a year-over-year basis and 9.4% at constant currency (cc).
2019 at a Glance
In 2019, the company reported revenues worth $14.88 billion, which beat the Zacks Consensus Estimate. On a year-over-year basis, the top line improved 9.4%.
Adjusted EPS for the year was $8.26, which beat the Zacks Consensus Estimate by 0.4%. The bottom line also increased 13% year over year.
Revenues by Geography
Revenues in United States came in at $3.04 billion, up 9.8% year over year. International sales were up 6.2% to $1.09 billion.
U.S. organic sales improved 8.2% and international organic sales came in at 7.6%. While solid performance across Orthopaedics, MedSurg and Neurotechnology segments drove growth in the United States, robust gains in emerging markets, Europe, Japan and Canada led to higher international organic sales.
Orthopaedic: In the quarter under review, revenues in the segment totaled $1.47 billion, up 6.7% year over year. The segment’s revenues improved 7.3% at cc. The performance can be attributed to better results at the Knees, Hips and Other sub segments. The company continues to witness solid demand for Mako TKA (Total Knee Arthoplasty) platform or cementless knee and other 3D printed products.
MedSurg: This segment reported sales of $1.84 billion, up 6.8% year over year. Sales at the segment increased 7.4% at cc. Per management, the segment improved 6.8% organically in the reported quarter, led by strong Endoscopy, Instruments and Medical performances.
Neurotechnology & Spine: Sales in the segment amounted to $827 million, up 18% year over year and 18.2% at cc. Organically, the segment witnessed growth of 12.5%. Per management, the upside was driven by solid performance by the neurotech product lines.
In the fourth quarter, gross profit totaled $2.70 billion, up 10.1% from the year-ago quarter. Adjusted gross margin was 66.3%, up 60 bps.
Operating income totaled $944 million, up 35.2% from the prior-year quarter. Adjusted operating margin was 28.3%, up 80 bps.
Cash and cash equivalents came in at $4.34 billion, up 19.9% from the year-ago quarter.
Cash flow from operating activities as of Dec 31, 2019, came in at $2.19 billion, down 16.1% from the year-ago period.
Stryker expects 2020 organic net sales growth to be in the range of 6.5-7.5%.
On a full-year basis, adjusted EPS is expected in the band of $9.00 to $9.20. The Zacks Consensus Estimate is pegged at $9.03, within the company’s guided range.
For first-quarter 2020, adjusted EPS is anticipated within $2.05 and $2.10. The Zacks Consensus Estimate stands at $2.05, within the company’s projected range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Stryker has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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