On Nov 28, we issued an updated research report on Stryker Corporation (SYK– Analyst Report). We believe that Stryker’s acquisition-driven strategy will enhance its long-term growth prospects by expanding its existing product offerings across all business segments. However, it faces intense competition in the orthopedics industry.
Stryker has a diversified product portfolio, which immunes the company against economic downturns. Additionally, Stryker’s strong balance sheet and cash flow enable it to pursue growth opportunities including acquisitions. The company uses its cash flow to return value to investors in the form of dividends and share repurchases. We believe that aggressive share buybacks will boost earnings as well as shareholders’ value over the long run.
We expect Stryker to grow by virtue of its strong and diversified product portfolio, innovative pipeline, strategic acquisitions along with the ongoing cost-control measures and improving operational efficiency.
However, as Stryker continues to execute top-line enhancing acquisitions, it adds to integration risks and is also pressurizing gross and operating margins. On the other hand, the frequent acquisitions can negatively affect its balance sheet in the form of a high level of goodwill and intangible assets.
Moreover, the orthopedic industry is highly competitive and Stryker faces strong competition from players like Zimmer Holdings (ZMH – Analyst Report), Johnson & Johnson (JNJ – Analyst Report), Smith & Nephew (SNN – Snapshot Report) and Biomet, Inc. The mergers between Medtronic and Covidien as well as Zimmer Holdings and Biomet will further intensify competition. Both of these transactions may impede Stryker’s attempt to become a major market power.
Stryker also has to combat challenging macro economic conditions, particularly the 2.3% medical device excise tax. Tight spending environment, tapering of reimbursements and pricing pressure are added concerns.
Currently, Stryker carries a Zacks Rank #3 (Hold).