10 Reasons to Buy Stryker

09/27/2019 5:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Medical-equipment maker Stryker (SYK) offers impressive growth, competitive technological advantages, and a reasonable valuation — attributes that make it a healthy addition to any portfolio, notes growth stock expert Richard Moroney, editor of Dow Theory Forecasts.

Below are 10 reasons for excitement about this Long-Term Buy-rated stock.

1) Among stocks in the S&P 1500 Index, Stryker ranks No. 1 in its industry for Quadrix Overall (82) and Earnings Estimates (98) scores.

2) Stryker’s total return of 21% over the last three months is good for second-best among our recommended stocks. Despite that encouraging share-price momentum, the shares remain attractively valued.

3) All three of Stryker’s business segments — orthopedics, medsurg, and neuro-technology & spine — posted sales and profit growth in the first half of 2019. Orthopedics makes implants used for surgery on knees, hips, and extremities. Medsurg produces medical equipment, instruments, and disposable supplies. The neuro-technology unit makes implants for brain and spinal surgery.

4) In the June quarter, Stryker topped the per-share-profit consensus by $0.04, marking its 18th consecutive quarterly profit surprise. Stryker beat on sales in 15 of those 18 quarters.

5) Over the last fi ve years, Stryker has averaged a trailing P/E about 5% higher than the average for medical equipment makers. Today, the stock trades at a 5% discount to its peers, despite its robust growth profile.

6) Over the last decade, Stryker has boosted its dividend at an annualized rate of 6%. The stock’s current yield of 0.9% is more than twice the average for its industry.

7) More than 700 orthopedic surgeons use MAKO robotic arms to assist in surgery. In the U.S., the number of robot-assisted surgical procedures rose more than 50% in the June quarter. Stryker has parlayed the MAKO competitive advantage to aggressively expand the number of locations using the robots and cross-sell other products at those sites.

8) While 8% of patients who undergo partial knee replacement end up back in the hospital, when a MAKO assists the surgeon, that number falls to 3%. With MAKO robots linked to higher patient satisfaction and reduced postoperative pain, the company is on pace to boost its installed base of robots at least 25% to more than 800 by the end of the year; utilization rates for installed robots continue to rise.

9) Stryker’s sales rose 9% last year and annualized over the last five years; the consensus calls for 9% growth this year as well. The company has posted sales gains in 40 consecutive quarters, and we expect that streak to continue, contributing to solid profit growth. Which brings us to the last reason for optimism.

10) Analysts expect Stryker’s per share profits to rise 10% in both 2020 and 2021; estimates are on the rise. The company’s growth seems even more impressive when you consider that the market for knee and hip replacements is fairly stable. To generate real growth, Stryker must take share from its rivals. About 4,000 orthopedic practices operate in the U.S. — plenty of room for expansion.

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